Vodafone Idea Limited (VIL), a prominent Indian telecom operator, has been engaged in discussions with the Department of Telecommunications (DoT) for the removal of bank guarantees (BGs). The company has clarified to the stock exchanges that when a final decision by the telecom department is made, it will disclose the necessary information to the public.
VIL said, "the Company has made detailed representations to the DoT and continues to be engaged with DOT for removal of the bank guarantee requirements for spectrum acquired before 2022."
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On Monday, a news item circulated online saying that the DoT had written to Vodafone Idea for submission of pending BGs. The telco in a recent investors call told the analysts and shareholders that it is in discussions with the DoT to abolish the bank guarantees for spectrum from the sector. According to Vodafone Idea, BGs are a legacy concept and should be removed.
The Bank Guarantees (BGs) are to be submitted by the telcos so that when they default on payments of dues or penalties, the telecom department can encash the guarantee. But it is a hassle for the telcos. The sector is already cash-stressed and Vodafone Idea has indicated to the government that it is in no position to submit bank guarantees.
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In the coming months, Vodafone Idea needs to submit bank guarantees of Rs 24,700 crore to the government. While the government has said that bank guarantees need not be provided for spectrum purchased after 2022, for the spectrum from the previous years' auctions, the guarantees have to be submitted.
It is pretty evident that Vodafone Idea would not be able to submit the bank guarantees. What's interesting here will be to see the stance of the government. If the bank guarantees are abolished, it will be a huge win for the sector and the telcos.
