The Reserve Bank of India's decision to treat authorisations, licences and rights - which are provided as collateral while seeking a bank loan — as intangible assets is expected to hit new telecom operators the most.
According to a banker, in a typical infrastructure project, nearly 50 per cent of the value of the loan comes in the form of securities, guarantees and other collateral. Of this, half is accounted for by collateral such as telecom licences, which now have to be treated as unsecured loans that carry a risk weight of 125 per cent.
This is expected to put pressure on the capital adequacy ratio of banks, as they would have to set aside more capital for financing projects where the collateral is in the form of rights, in addition to guarantees provided by the promoters.
| WEAK SIGNALS |
| * In a typical infrastructure project, nearly 50 per cent of the value of the loan comes in the form of securities, guarantees and other collateral |
| * Of this, half is accounted for by collateral such as telecom licences, which now have to be treated as unsecured loans that carry a risk weight of 125 per cent |
| * This may put pressure on the capital adequacy ratio of banks, as they would have to set aside more capital to finance projects where the collateral is in the form of rights |
Bankers said that in other projects, for instance highways, lenders have a charge on the cash flows coming through toll collections. In case of power projects, land used for the development of the project is provided as a security, while the machinery is hypothecated to the lenders.
“There is unlikely to be much impact on projects other than telecom services,” said a bank chief.
The government has given around 120 licences to telecom players to start mobile service operations. Of this, half-a-dozen players are expected to roll out pan-India services with each firm needing around Rs 10,000-15,000 crore to launch the services. Additionally, existing players are also raising debt to grow their footprint.
While dealing with existing players who are raising funds to finance their expansion, lenders look at the market value of the licences to determine the value of the collateral. So, even if the cost of the licence to an operator was Rs 500 crore, it is benchmarked against the value of the latest licence issued to reduce the collateral requirement for the borrower. A pan-India licence comes with an entry fee of Rs 1,651 crore, along with free spectrum of 4.4 mega hertz.
“In a way, lenders were using the valuations to their advantage. But RBI is now trying to put an end to the practice of assigning high valuations,” said the head of a finance company.
Higher risk weights would also have an impact on the lending rates as the cost is typically passed on to the borrower. In the absence of loans from domestic lenders, promoters will have to seek overseas funding, which is not coming cheap as there are supply constraints due to the financial sector turmoil in the US and Europe.
“More clarity is required for which we will soon approach the central bank,” said a senior executive at a public sector bank.
