Indian banks can absorb 2G licence losses: Fitch Ratings

Chennai -  The Indian banking sector should be able to weather the loan losses from the cancellation of second generation (2G) spectrum licences by the Supreme Court though their profits  would take a hit, says global credit rating agency Fitch Ratings.

"Indian banks' exposure to the telecom companies that are losing 2G licences is around 0.6 percent of total loans. However, around half of the exposure is in the form of financial guarantees  towards future payments of licence fees. State Bank of India has confirmed that, once the licences are cancelled, those guarantees should no longer be in force,” Fitch Ratings said in its

research report, released here Friday.

"While the future of smaller telecom operators in India remains uncertain, we note that some of the operators that have lost licenses also have other fairly significant operations that are not  affected by the ruling, which may provide some respite to their creditors,” the report added.

According to Fitch Ratings, the volume of loans that are affected by the license cancellations may be less than 0.2 percent of the sector's total loan book.

“Assuming a conservative level of write-offs on these loans, we believe that banks' credit quality will not be materially weakened, but that annual profits could fall by up to 10 percent,” the  rating agency said.

In big blow to the United Progressive Alliance government headed by Prime Minister Manmohan Singh, the Supreme Court Thursday cancelled 122 licences granted to telecom companies in  2008 on the grounds that the allotment was illegal.

According to the Reserve Bank of India (RBI) the total exposure of Indian banks to the telecom sector (2G, 3G and others) is around Rs.91,000 crore as on November 2011.