Vodafone Idea Lenders In Fear As Fail Could Be Massive

Just a day after the revelation of the warning letter from Kumar Mangalam Birla to Vodafone Idea about an irretrievable point of collapse, banks are getting worried about the telecom major. They claim it to be “too big to fail”. Both Indian and global lenders have an exposure of Rs. 1.8 lakh crore. It is said that a large part of this is in the form of guarantees.

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Vodafone Idea Crisis

Already, some private lenders with a funded exposure have started making provisions, but a bulk of the exposure is to the banks in the public sector. If VIL fails to repay the dues it owes to the governments and the guarantees are invoked, then it will immediately turn into debt and might soon be categorised as a non-performing asset.

The take on public sector banks will not be huge as their exposure as lenders have been demanding a higher cash margin from Vodafone for the guarantees. Notably, IDBI is claimed to have up to 40% margins for the guarantee provided. This will be large to wipe out profits for many.

When it comes to banks, the debt recovery is contingent on Vodafone Idea’s operation and retaining customers. The company continues to have close to a quarter of the Indian market. But this situation might witness changes overnight if there is a default.

As per the bankers, the process of insolvency works when there are buyers. In this case, Rs. 53,000 crore AGR dues are a deterrent to the Centre. What’s worth mentioning is that this is despite Birla being ready to write down his equity.