Telecom companies risk increasing pressure on banks following Supreme Court order

Mumbai, Ta. October 25, 2019, Friday

With the Supreme Court's order, lending to the telecom sector poses a risk to the banks. In a ruling Thursday, the Supreme Court directed the current definition of Adjusted Gross Revenue (AGR). The Supreme Court ruling will affect the ability of telecom companies to pay down debt, which has increased the likelihood of defaults, said one analyst.

Due to widespread competition among private players in the telecom sector, telecom companies are also under heavy stress and their finances have worsened.

Telecom companies have to pay Rs 5 crore to the government. The companies are considering asking for more time for these payments and they will get some temporary relief if they are approved, he said.

It is not yet clear what effect this ruling will have on the RCOM that has gone before the NCLT.

According to a report by the Reserve Bank of India, the exposure of banks to the telecom sector at the end of August 1 was Rs 5 crore, which was Rs 5 crore in August. Following the apex court's order, the top three telecom companies are expected to pay Rs 5 crore to the country's telecommunications department.

There has been a war between the government and telecom service providers for the last 3 years over the definition of AGR. Telecom companies were arguing that the main function of the AGR should be to include revenue only, while the government defended that it also included income from other services besides basic services.

Based on the AGR, the government calculates the tariffs charged by the telecom operators. Telecom companies pay 3-5% of AGR's spectrum usage charge and 5% of the license fee.