The Honourable Supreme Court, on appeal by one of the NGO’s, has expressed concern over banks providing loans to telecom companies against licenses as collateral and has included bank’s lending to 2G license aspirants as one of the issues to be investigated by CBI in the 2G spectrum allocation case.
We Analysed the situation w.r.t the following – Banks exposure at risk due to non-roll out of 2G licenses by new players, Lapsation, if any, in terms of adequate collateral or security, Is 3G funding provided by banks at risk ?
While 2G licenses were awarded to both new and existing telecom operators, we believe risk as far as banks are concerned would be restricted only on funding to new players, as incumbent players had existing operations or cashflows to lien.
As far as financing for 3G licenses is concerned, we do not see any risk on banks as licenses were allotted only to established players where the banks had comfort from existing operations and ability to roll out from their track record. For 3G licenses, banks have provided mainly working capital (short term) loan against adequate corporate guarantee and lien on existing cashflows. Interactions suggest that banks would not have entertained financing for 3G licenses on a standalone basis without any corporate level guarantee or existing cashflows