The country’s banks are worried after two recent Supreme Court (SC) rulings that threatened to repay loans to the tune of $ 6 billion, or nearly Rs 50,000 crore.
The bankers are holding informal talks to deal with the fallout from the two rulings – one in favor of Amazon in the Future-Reliance case and the other in the case related to Adjusted Gross Income (AGR) contributions.
It can be noted that the country’s banks are already facing high levels of bad loans and reduced profits due to the pandemic. The two recent decisions could add further stress as they could impact loan repayments.
BACK TO A FUTURE TRUST AGREEMENT
The Supreme Court in favor of Amazon.com upheld the Emergency Compensation (EA) it had obtained against the Future Retail-Reliance Retail deal. The decision could jeopardize the sale of assets of Future Retail to Reliance Retail for an amount of Rs 24,713 crore.
The deal is crucial for cash-strapped Future Retail, which owes Indian banks $ 2.69 billion or nearly Rs 20,000 crore. Without this agreement, Future Group may not be able to reimburse its contributions to banks in the near future.
Read | Reliance-Future Retail deal: SC rules in favor of Amazon, declares emergency award enforceable
Two bankers who spoke to Reuters news agency on condition of anonymity said negotiations were underway to find a way to avoid serious consequences.
It should be noted that loans to Future Group were limited earlier this year as banks gave the conglomerate more time to make repayments owed over the next two years.
However, bankers fear Reliance could bail out if court proceedings drag on.
In bankruptcy proceedings, bankers fear that they will have to discount loans to the tune of 75 percent or more.
Some of the banks that have lent to Future Group include State Bank of India (SBI) as well as Bank of Baroda and Bank of India.
Read also | E-Tail fight: the Amazon-Future Retail legal battle intensifies
THE REGULATION OF THE AGR CASE PUT THE VODAFONE IDEA IN A TIGHT ZONE
In another decision, the highest court rejected a request for recalculation of the AGR made by Vodafone Idea, Bharti Airtel and Tata Teleservices. The three companies approached the highest court and challenged the airline charges calculated by the Department of Telecommunications (DoT).
The rejection of the plea clearly indicates that the three telecommunications operators will have to pay their contributions by March 31, 2031 in 10 installments. Most of the AGR contributions are to be offset by Vodafone Idea (Rs 58,000 crore) and Bharti Airtel (Rs 43,000 crore).
Banks are worried about the move as Vodafone Idea’s financial situation remains vulnerable and may not be able to pay dues. The banks have an exposure of almost Rs 30,000 crore in Vodafone Idea Limited (VIL).
Decoded | Importance of saving cash-strapped Vodafone Idea
Some banks that have exposure to Vodafone include Yes Bank, IDFC First, IndusInd Bank, SBI, and other private and public lenders.
Vodafone’s main lenders are Yes Bank, IDFC First Bank and IndusInd Bank, as well as other private and public lenders. While banks may consider restructuring loans, it may not make a difference given the current financial situation of the telecom operator.
Not only the banks, but the government will also suffer massive losses if Vodafone Idea fails to maintain its business and heads for bankruptcy.
