Large scale policy intervention may not be required to ease the current financial stress in the telecom sector as some “Green Shoots” are already visible during the first quarter but there may be some relief on the way for the troubled telcos in the form of lower interest rates on their loans and longer period for the loan repayment, according to sources of a Government constituted panel on Telecom.
This was the by and large the outcome of the Inter-ministerial Group (IMG) meeting today to discuss steps to pull out the sector from a financial crisis caused by huge spectrum loans and heightened competitions.
“Some green shoots are already visible. So big policy interventions may not be required. The problem appears cyclical. Ups and downs are part of any business cycles. Possibilities are there that there may not be any bailout package”, said one person familiar with the IMG meeting.
However another IMG source said the panel may give out some relief to the troubled sector in the form of increased period for payment for spectrum loans by 6 more years to 16 years from the current 10 year.
According to an estimate, this alone can boost a lot of liquidity in the sector and release the cashflow of the telcos’ by about Rs 56000 crore
At present, a portion of spectrum auction amount is taken as upfront payment by Department of Telecom (DoT) just after the auction and the rest after a two-year moratorium is paid out every year in 10 instalments.
Said the source the other important step the IMG is considering is shifting to MCLR (Marginal Cost of Lending Rates) based rate of interest from the current PLR (Prime Lending Rate) only on the interest portion of the deferred payments.
That will mean cutting down on rate of interest from the 13% PLR to 8% on the interest and penalty component of the deferred payments of the telcos for the spectrum bought in October last year. This can save the telcos’ of their interest payments by Rs 20, 000 crore, say industry estimates.
On the issue of IMG’s view on spectrum being used as a collateral for the loans, the source added this is reconciled and the guidelines of DoT and RBI would converge.
The financial stress in the telecom sector intensified after Reliance Jio launched its services last September with free services and cheap data offers leading to massive fall in revenues and net profits of the telcos which spiralled into a cycle of low licence fee and spectrum usage charges payment by them.
The outstanding debt in the industry is pegged at Rs 4.5 lakh crore, while banking sources put it at Rs 7.5 lakh crore due to mainly for paying for spectrum.
Reliance Jio’s entry saw Bharti Airtel ,Vodafone, Idea Cellular and Reliance Communications hitting low on profits and revenues.
Keeping an eye on the already high NPAs, in April, RBI asked banks to treat telecom sector as a stress sector and set aside higher provisioning for the telecom sector.
As it appears now, the operators plea for cut in licence fee, Spectrum Usage Charges and USO Funds have not found any favours with the panel which has eight DoT and three Finance Ministry members.
The next meeting of the IMG is on August 16 and 17 to finalise their suggestions.