BANK LOANS TO TELECOM SECTOR TO BE DROPPED BY 9.5%

              Bank loans to the telecom sector shrank by 9.5% since the beginning of the financial year, even as the controversies surrounding the issue of telecom licenses deepened. Of the total outstanding loans of 90,000 crore for the telecom sector, the loans to be cancelled 2G license holders amount to Rs. 10,000 Crore.

            According to numbers released by the Reserve Bank of India, outstanding loans to the telecom touched a peak level of Rs. 100430 crore as on March 2011. However, by the end of December these loans had shrunk to Rs. 90,970 Crore, which means a drop of merely 9.5%. Incidentally this sector had recorded the sharpest drop in lending. Power, which is another sector where several borrowers are having trouble repaying, has seen loan growth of 17.2% which is very much higher than the average loan growth.

           On Friday, the Finance Ministry said that public sector banks have loans of around Rs. 10,000 Crore outstanding from companies that have been affected by the Supreme Court Order of cancelling 2G licenses. Of this around Rs. 7,500 Crore is secured against assets. Al the leading private banks ICICI Bank, HDFC Bank, Axis Bank and Yes Bank said that they did not have any loans outstanding to companies that were affected by the Supreme Court Order.

           RBI’s data shows that total non-food credit (lending to individuals and business) stood at Rs. 40, 45,780 Crore. Given this number bank loans to the telecom sector stands at a little over 2%.

               The numbers also show that overall bank lending had slowed down to 15.4% year on year growth which is lower than 16% revised forecast by RBI for the whole year. According to a report by Nomura Equity Research looking at the subsectors within industry category-and assuming a 16.5% credit growth target for the subsectors for FY12F-subsectors such as Power, roads, iron & steel and engineering are well placed in terms of proportion of the annual target completed. “Using this metric, power and roads subsectors are ahead of the target. Textiles, food processing and Television and Telecom are clearly lagging so far from the target, but seasonal priority sector lending effect could come into play for textiles and food processing” the report said.

             The report points out that retail loan growth has lagged loans to industry and services. While loans to industry and grew 19.8% year on year and lending to the service sector rose 14.9%, retail loans grew by 12.3%. Even slower was credit growth to the agriculture sector which rose by only 5.6%. “Within retail loans-vehicle loans have tracked better so far than mortgage loans (given the high interest rate regime), while non-collateralized loans are clearly much slower. Mortgages have completed only 57% of the proposed annual FY12F target so far, compared with 81% in FY11 and 66% in FY10.” Nomura Equity Research said.