Provisions plan: Banks stay cautious on Vodafone exposures

Thereafter, when questions surfaced about Vodafone Idea’s ability to function as a going concern, banks were in doubt as to whether the entire ecosystem will be supporting three players or two players.

More than a month since the department of telecommunications unveiled a relief package for the sector, including a moratorium on unpaid dues by telcos, banks remain cautious with regard to their exposures to Vodafone Idea. Most lenders have chosen to make provisions proactively for the account even as it remains a standard exposure.

In their Q2FY22 investor presentations some banks have stated their provision coverage on the Vodafone account, without naming the company. IDFC First Bank, which has a Rs 3,244-crore exposure to the company, has set aside Rs 487 crore, or 15% of its total fund-based and non fund-based exposure, as provisions.

Similarly, Yes Bank has provided Rs 336 crore, amounting to 10% of its exposure to Vodafone. IndusInd Bank is also reported to have provided aggressively against its fund-based exposure to the company.

State Bank of India (SBI) on Wednesday said that while there is little to worry about with respect to the troubled telco, it has not written back the provisions it had earlier made. The lender sees no need for fresh provisions. SBI chairman Dinesh Khara said that after the announcements made by the government, a whole lot of uncertainty has been laid to rest and the promoter has been in a position to honour the liabilities relating to the account. “There is no reason for us to be really concerned. They have plans which they are working on in terms of raising capital, etc, and also increasing the investment in technology. So that account is back on track,” Khara said.

Yes Bank told its investors on a post-earnings call that it would like to wait for more clarity from the telecom company.

Prashant Kumar, managing director & CEO, Yes Bank, said that in Q1 the bank had chosen not to make any provisions because the issues surrounding Vodafone had not crystallised by then.

Thereafter, when questions surfaced about Vodafone Idea’s ability to function as a going concern, banks were in doubt as to whether the entire ecosystem will be supporting three players or two players.

“And then there was a clear communication that promoters are not going to put any equity. Now, after the government of India package, and even after the company responded to this, I would not be saying there is any uncertainty about this exposure. But still we are waiting for the clarity to come from the company,” Kumar said.

The Vodafone Idea account has been a tricky asset for banks over the last couple of years, amid persistent doubts over the company’s ability to pay up its share of adjusted gross revenues (AGR). Bankers feared the invocation of bank guarantees issued to the company would lead to stress on their balance sheets. For now, the government approval of a moratorium for past dues gives the company time to raise funds and turn itself around.