2G loans to dent banks' profits

Indian banks, particularly PSU lenders, will suffer losses on loans to the telecom firms whose licences were cancelled by the Supreme Court in the 2G spectrum allocation case, credit rater Moody’s said on Monday.

“Our preliminary impact assessment of the telecom licence cancellations indicates that these exposed banks, mainly public sector banks, will almost certainly suffer losses associated with their loans to affected telecom companies,” Moody’s Investor Services said.

It said the difficult operating environment would continue to pressure the asset quality and ratings of banks. The lenders have an exposure of over Rs 10,000 crore to the telecom companies which were granted 2G licence in 2008. Earlier this month, the Supreme Court cancelled 122 2G spectrum licences granted by former telecom minister A Raja on the ground that they were issued in a “totally arbitrary and unconstitutional” manner.

“We view these loans to be particularly at risk because they were extended mainly to small operators, many of which have no other sources of income than the activities that their licenses allowed them to conduct.

And in most cases, the only collateral backing the loans, were the very licenses that are now no longer valid,” Moody’s added. It said the loans relating to the cancelled licences represent a small fraction (0.2 per cent) of the banking system’s total loans.

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