Ringing in bank safety PDF Print E-mail
Thursday, 14 June 2012 00:00
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Allowing spectrum mortgage is a big relief

With just under R95,000 crore lent to the stressed telecom sector, an eighth or so of which would be to telcos whose 122 licences were cancelled by the Supreme Court, India’s bankers have to be a worried lot. Those of them that lent to the firms ex-telecom minister A Raja helped were under the impression the licences, and the scarce spectrum that came along with them, had been hypothecated to the banks, but there is no clarity on this. When the spectrum that came with these 122 licences is auctioned in August, there is no certainty the banks that lent around R12,000 crore to telcos with the cancelled licences will automatically get their money from the auction proceeds—some hectic lobbying with the finance ministry is probably under way to ensure this happens. With RBI and the finance ministry approving the Trai proposal that changes be made in the tripartite agreement between the government, the telcos and the banks—to allow the banks to take over the spectrum in case of a default—the banks can breathe a lot easier vis-a-vis the loans they make in the future.


Given how the list of potential defaulters is growing—the ratio of NPAs and restructured loans is already up to around 8% of the R46 lakh crore of outstanding loans—banks need to have access to assets that can fetch them a decent price if the need arises. Typically, banks have a pari passu charge on plant and machinery but given how quickly these lose value, these are often no better than scrap by the time the sale goes through. There are scattered instances where banks which have lent to road projects have managed to get the franchises reassigned when the original borrower ran out of funds, but the specific rights have not been clearly spelled out so far. Can a bank take over a captive coal mine allocated to a power company that has defaulted, for instance, and sell this to someone else? Unlikely. Which is why the RBI decision on telecom spectrum is to be welcomed as it also opens up the possibility of greater clarity on hypothecation of other resources. There are still some grey areas on how resources like spectrum are to be priced—RBI has asked for a credible methodology to be developed on this—but these can be ironed out soon. Apart from for the bankers, this will also bring considerable relief for potential borrowers as their chances of getting loans just brightened. Especially for newcomers who have no great balance sheets to use as collateral.


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