On Friday, he Supreme Court (SC) dismissed the review petitions filed by the telecom companies seeking more time for payment of AGR (Adjusted Gross Revenue) dues and directed to pay the Department of Telecom their dues by 17 March.
The petition was filed by Vodafone Idea, Bharti Airtel and Tata Teleservices and the verdict will have grave revenue implications on the already ailing telecom operators that are facing tough business competition after the entry of Reliance Jio.
On Thursday, Vodafone Idea reported a loss of Rs 6,400 crore for the December and said that "the Company's ability to continue as a going concern is essentially dependent on a positive outcome of the application for modification of Supplementary Order before the Hon'ble Supreme Court and subsequent agreement with DoT for the payment in installments after some moratorium and other reliefs."
The company is also facing difficulty in raising capital due to credit rating downgrade.
Banking stocks with exposure to these telecom operators declined as the AGR verdict poses threat of mounting non-performing assets (NPAs).
Shares of IndusInd Bank and IDFC Bank hit new 52-week lows of Rs 1,777.60 and Rs 39.75, respectively. RBL Bank was down by nearly 3 percent, Axis Bank 2 percent, HDFC Bank 2 percent, Federal Bank 1.6 percent, and SBI 2.5 percent.
YES Bank, which has the highest exposure to telecom sector was, however, trading higher on fund raising plans. ICICI Bank was fluctuating between losses and gains.
Nifty bank index slipped 1.5 percent to a low of 30,776.10.
According to Goldman Sachs' report, Vodafone Idea's debt excluding deferred payment liability is around Rs 28,000 crore, with cash and cash equivalents of Rs 15,400 crore as of September 2019.
While this translates to a net exposure of about Rs 13,000 crore, a not so substantial amount when the overall non-performing loans are considered in the entire banking system, it said that investor confidence could be impacted and lead to aversion from banks that lend to telcos.
As per estimates individual exposure of banks to Vodafone Idea is:
SBI: Rs 11,200 crore
IndusInd Bank: Rs 3,995 crore
IDFC First Bank: Rs 2,500 crore
ICICI Bank: Rs 1,725 crore
Punjab National Bank: Rs 1,027.7 crore
As for IDFC First Bank, its debt exposure to Vodafone Idea accounts for 11 percent of its net worth, and 9 percent of the IndusInd Bank's net worth, the report added.
Exposure of banks to the entire telecom sector ranges between 10 percent and 30 percent of their total equity. Among private banks, Yes Bank has the highest exposure at Rs 7,937 crore or 29 percent of equity and SBI among public sector banks has extended debt of Rs 36,542 crore or 16 percent of its total equity.
In figures, among large lenders, Axis Bank has Rs 17,178 crore and HDFC Bank has Rs 28,353 crore exposure.