Economic Highlights

New Delhi, 3 February 2012

SC Verdict On 2G

BANKS, USERS FRET TOO

By Shivaji Sarkar

The Supreme Court verdict on the 2G scam has not only given a hard knock to the Government and the 121 licencees, but has also hit a sector which was only a facilitator, the banks. The total exposure of the banks to these companies for 2G spectrum is estimated at over Rs 20,000 crore. Others to get hit shall be the users.

In fact, the verdict has wider ramifications. It is not just restricted to setting the policy for the telecom sector but calls for a fresh look for framing the policy and rules for bank lending to large corporates. Besides, it calls for a review of the FDI policy as all these investments are not in foreign currency. Many such investments, it is said, are raised in India often from banks and other financial institutions.

The major banks that are exposed to the 2G include the State Bank of India, Punjab National Bank, Corporation Bank, IDBI Bank, Central Bank of India, Bank of Baroda, Canara Bank, HDFC Bank, Axis and Yes Bank. Among these, the SBI has the largest exposure at about Rs 4500 crore, the IDBI at Rs 4000 crore and the others claim to have around Rs 500 crore each or less.

Apparently, while the number of licences is large, it is basically restricted to around a dozen companies and the banks believe they would be able to recover their money as the Government would return the licence fees. However, since procedural wrangling are expected to continue, the banks may not get their money back soon, which is not good news for a sector, which requires Rs 4.5 lakh crore recapitalisation. And certainly not for banks which are running out of cash as about Rs 9.10 lakh crore is locked in the infrastructure and power sector.

The total exposure of the banks to the telecom sector is estimated at Rs 90,000 crore – a steep three-time rise since 2008, when it was around Rs 30,000 crore. Worse, the banks also seemingly have a lackadaisical attitude. They forget that they don’t have any money of their own and are custodians of public money. The SBI Deputy Manager Santosh Nair, however, says he is not worried as the loans are backed by collaterals. A good argument, but is it possible to attach collateral without hassles? The banks will have to follow a detailed procedure, involving costs, which are often dumped on the depositors.

And, this raises a vital question on the functioning of the banks itself. They  are supposed to give loans for business purposes so they can increase their incomes through service charges and interest earnings. They are also supposed to be extremely cautious in extending such loans. No commoner can get access to bank funds, sometimes even of his own, at such ease. Small creditors, according to banks, have better repayment records and default is minimal.

In 2001 there were only 4 million subscribers and in 2007-08 there were 350 million. The entire policy was manipulated and massive irregularity committed which costs heavy loss to the public revenue. The banks cannot aver that they were oblivious to the realities. There are many grey areas in exposing the banks to loans which are doubtful. It has locked over Rs 3.16 lakh crore with power companies and the projects are getting delayed. The banks may say they would earn higher interests, but this is not correct. Often it has been seen in the name of rescheduling loans, interests are waived and repayments are further delayed.

Cellular Operators Association of India Director General Rajan Mathews has his own concern. He wants the Government, which has lost Rs 1.76 lakh crore as per CAG estimates, to come to the rescue of the sector as it has made huge investments and must take care of the sentiments of both domestic and foreign investors.

This apart, the users’ interests too require protection. Telecom has turned out to be big business. The scope for its expansion is huge in a country with 121 crore population. Many still remain to be connected. Auctioning of licences at high bids has the advantage to the State as it accrues large sums. However, it raises the issue of how user rates could be made affordable if the investment cost increase.

Interestingly, while competition is supposed to bring down rates, of  late, the country has witnessed the opposite—an increase in rates. It would be too wild to allege there is cartelisation. But if all different players sing the same tune of “revising” tariff, it is no music to the ears of the users. It further raises the fear that the companies are acting in tandem. This may have been the case before the cancellation of the licences. But now the process shall give an edge to the existing players to manipulate the tariff as they like.

Every other way the common man is the loser – his deposits are being lent to favourite companies and in the process they are dumping higher tariff on them. The averment of TRAI Chairman J S Sharma that subscribers would not be hit as they have portability of numbers should be taken with a pinch of salt. In fact, it could be seen as a pointer that TRAI is unable to protect the interests of the user and it’s a different story whose interest it is protecting.

Clearly, the common man’s woes wouldn’t end here. As the Supreme Court has set four months to reopen the auctioning process, more money may flow out of the bank coffers to facilitate the process. This is going to impact lending for other sectors. The Reserve Bank thus needs to discuss the process and consider the limit of exposure by banks even if it is against collateral. It needs to set the policy for locking in money in ventures, which have long gestation period.

The new auctioning would be done after setting a reserve price for each circle. The bids would be high. Finally all investment costs would be dumped on the user. Profits would be of individual players. In the ultimate, the losers are the people, whether as users or lenders (through banks). Somebody now needs to think in terms of the common man so that neither his deposit is misused nor is irrational cost dumped on him. ---INFA

(Copyright, India News and  Feature Alliance)