NEWS & ADVICE : PERSONAL LOAN
Bank loans may become tough for new telecom firms
By Vaibhav Aggarwal
Apr 21, 2009
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The RBI's latest decision of treating the authorisations, licences and rights as intangible assets is likely to affect new telecom operators the most. These instruments were earlier provided as collateral for availing a bank loan but now the central bank has lined the loans against these securities as unsecured loans.

A banker in a typical infrastructure project said that nearly 50% value of the loan comes in the form of securities, guarantees and other collaterals and out of these, half of them are collaterals such as telecom licenses that have now been treated as unsecured loans with a risk weight of 125%.

This change is liable to stress the capital adequacy ratio of banks because they will have to make more provisions for financing projects where the collateral is in the form of rights, in addition to guarantees provided by the promoters.

Meanwhile bankers said that for other projects such as of highways, lenders have an authority over the cash flows coming through toll collections. Where as on power projects, land used for the development of the project is provided as a security and the machinery is pledged to the lender.

A bank chief said, "There is unlikely to be much impact on projects other than telecom services."

As much as 120 licenses have been issued by the Government to telecom players to start mobile service operations. Around 6 of these players are likely to roll out the services at a cost of Rs 10,000-15,000 crore each. In addition there are existing players that are also raising debt to expand their business.

The banks will examine the market value of the licenses to arrive at the collateral value while dealing with existing players that are planning to raise funds to finance their expansion. Therefore a license that costs Rs 500 crore to an operator is kept against the value of the latest license issued to reduce the collateral requirement for the borrower. A license for the industry comes at an entry fee of Rs 1,651 crore along with free spectrum of 4.4 mega hertz.

Head of a finance company said, "In a way, lenders were using the valuations to their advantage. But RBI is now trying to put an end to the practice of assigning high valuations."

Further the lending rates would also be affected by the higher risk weights in the form of higher costs typically passed on to the borrower. So in the absence of funds from the domestic lenders, promoters will seek loans from overseas market. Even the funds in the international market are not available at cheap rates because there are also supply constraints due to global financial turmoil.

A senior executive at a PSU bank said, "More clarity is required for which we will soon approach the central bank.

Recently SBI has agreed to lend a sum of Rs 10,000 crore to Voafone-Essar, a joint venture by UK's Vodafone and Essar.


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