A collapse of Voda Idea will hurt IDFC First Bank, YES Bank most – The Economic Times

Clipped from: https://economictimes.indiatimes.com/markets/stocks/news/a-collapse-of-voda-idea-will-hurt-idfc-first-bank-yes-bank-most/articleshow/85065328.cmsSynopsis

Vodafone Idea is unlikely to be able to service its gross debt of over Rs 1.8 lakh crore. The telecom operator owes at least Rs 28,700 crore to several state-owned and private sector lenders.

MUMBAI: The looming prospect of a financial crisis in India’s third-largest telecom operator,Vodafone IdeaNSE -0.83 %, will spell disaster for some of the country’s biggest private sector banks just when they were recovering from a multi-year bad loan cycle.

The refusal by existing promoters of Vodafone Idea to infuse cash in the debt-laden company and the Supreme Court’s recent dismissal of a plea for rectification of alleged miscalculation in adjusted gross revenue dues payable by the company to the government have condemned the telecom operator to bankruptcy, unless it can raise fresh capital.

Prospects of fund raising for the company look grim given that any new strategic investor will have to pour in billions of dollars that will largely be channelled to the government coffers and will not be reinvested in the company to prepare it for the new 5G world.

Did you Know?

Stock score of Yes Bank Ltd moved down by 1 in 3 months on a 10-point scale.View Latest Stock Report »
The resignation of Kumar Mangalam Birla as head of the company and his offer to the government to buy out Aditya Birla group’s stake is likely to further discourage potential investors.

In that backdrop, Vodafone Idea is unlikely to be able to service its gross debt of over Rs 1.8 lakh crore. The telecom operator owes at least Rs 28,700 crore to several state-owned and private sector lenders.

The highest exposure is withState Bank of IndiaNSE -3.30 % at Rs 11,000 crore followed byYes BankNSE -1.98 % at Rs 4,000 crore andIndusInd BankNSE -2.24 % at Rs 3,500 crore. However, in terms of percentage of loan book, the biggest hit from Vodafone Idea’s default will be toIDFC First BankNSE -3.92 % as it has an exposure of 2.9 per cent of its loan book followed by YES Bank at 2.4 per cent and IndusInd Bank at 1.65 per cent.

According to media reports, IDFC First Bank has already marked Vodafone Idea as stressed and provided for 15 per cent of the outstanding debt.

While Vodafone Idea is a one-off large account instead of the torrent of defaults seen over the past 10 years, it could have a bearing on the earnings performance of these banks in the coming quarters, as they will have to make hefty provisions against these loan accounts.

No surprise then that SBI was the worst Nifty50 performer today, down 3.3 per cent. Shares of IDFC First Bank tanked over 5 per cent, while those of YES Bank 2 per cent.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s