RBI backs ICICI Bank over BPL Mobile charges

The Reserve Bank of India (RBI) has come out strongly in defence of ICICI Bank against BPL Mobile Cellular's allegation that a delay in loan disbursement by the bank resulted in an additional interest burden of Rs 336 crore to the company.

In a letter addressed to the secretary, department of economic affairs in the finance ministry, a deputy governor of RBI said: "We find that the company's project implementation did not suffer substantially due to delay in financial closure as ICICI Bank as the lead arranger, other banks and FIs funded the project from time to time through bridge loans/short term loans."

The RBI's letter to the central government follows BPL Mobile's complaint to the finance ministry over the alleged delay in the financial closure, which has since been concluded on July 21.

The central bank said it had looked into the matter with the help of its inspecting officers who were conducting the annual financial inspection of ICICI Bank.

The matter was also discussed with the bank's executives and Rajeev Chandrasekhar, CEO of BPL Mobile, RBI said in its letter, a copy of which is with Business Standard.

An official BPL Mobile spokesman refused to comment on the issue.

The RBI said, based on the chronology of events, three attempts were made for financial closure, which did not materialise on account of various reasons.

These included the New Telecom Policy of 1999, issues relating to a proposed merger between BPL Communications and Birla-Tata-AT&T, disputes with shareholders, issues pertaining to vendor credit, and inability of company to bring in the required balance equity.

ICICI Bank said the main problem was BPL Mobile's inability to generate adequate income to service debts on time.

"Against the projected earnings before interest, tax, depreciation and amortisation (EBITDA) of Rs 511 crore for 2001-02, the actual EBITDA for the year was only Rs 55 crore," the RBI said.

BPL Mobile contested that and said for want of financial closure, it was unable to fully implement the planned capital expenditure and that it had received just Rs 983 crore against the planned Rs 1,257 crore.

The inability to implement the build-out of the network on time severely impacted the company's subscriber revenue and EBITDA buildup.

ICICI Bank said in response that it normally does not support projects where only 10 per cent of the projected income has been achieved.

However, it clarified that in view of the company's good asset base and the capacity of the partners to bring in additional funds, the project finance was continued.

ICICI Bank claims that lenders have disbursed 87 per cent of the funds, amounting to Rs 1,097 crore despite the company not achieving financial closure.

With the change in the telecom policy, financial closure could not be achieved on the back of revision in the business plan. ICICI Bank enhanced the viability of the project, increasing the rupee debt amount from Rs 1,000 crore to Rs 1,257 crore.

BPL Mobile, however, observed that as ICICI was represented in the government's taskforce in the formation of the New Telecom Policy 99, this cannot be a valid reason for delay in financial closure.

The company further alleged that the merger announced in June 2001 between BPL Cellular with Birla-Tata-AT&T should not have adversely impacted financial closure.

ICICI Bank however, pointed out that the merger led to uncertainty over the long-term business plan for the company, particularly in view of the possibility of Maharashtra circle being excluded from the merged entity.

There was also lack of clarity on AT&T's interest in BPL Cellular due to its common shareholding in both the operations. As per regulations, one promoter cannot have more than 10 per cent stake in two companies operating within the same telecom circle.

In its letter to the finance ministry, BPL Mobile also said that the project cost increased by 41 per cent from Rs 2,304 crore to Rs 3,428 crore due to the delay in financial closure. Eighty two per cent of the total increase amounting to Rs 778 crore was due to higher interest cost.

Also, the fixed cost per subscriber has gone up from s 43,000 in the earlier business model to Rs 58,000 now significantly impacting the company's competitiveness and cash flows.