India has taken another big step to bring relief to telcos

relief from guarantees
Time to celebrate? Relief for telcos. Image by mazzzur | Bigstockphoto

India has taken another big step to bring relief to telcos like Vodafone Idea and Bharti Airtel. The country’s Department of Telecom­munications (DoT) said that it is slashing the performance and financial bank guarantee requirements of telecom operators by 80%. The decision will unblock the cash of Indian telcos that they keep with banks to furnish bank guarantees.

The DoT, in a licence amendment note, said that Indian telecom operators will now be required to provide a performance bank guarantee of up to Rs 44 crore ($5.95 million) for each service for the telecom licence compared to Rs 220 crore ($29.73 million) mandated under the previous rule.

 “The Licensee shall submit a Financial Bank Guarantee valid for one year from any Scheduled Bank or Public Financial Institution, duly authorized to issue such Bank Guarantee…Initially, the financial bank guarantee shall be for an amount of Rs50/25/5 crore (for category ABC service areas, respectively), which shall be submitted before signing the License Agreement,” the telecom department said in an official circular, notifying the license amendment.

In the case of financial BGs, telecom operators will need to provide a financial bank guarantee of a maximum of Rs 8.8 crore ($1.19 million) per circle now, against the previous requirement of Rs 44 crore.

Bank Guarantees (BGs) had long been a contentious issue between Indian telecom operators and the authorities. With the financial state of the entire industry, even banks were getting jittery about renewing BGs for telcos, especially Vodafone Idea.

However, the new amended rules will not apply to defunct telecom operators that are currently going through a liquidation process.

The Indian government had last month announced structural reforms for the telecom operators and had then said that bank guarantees were being rationalised, leading to a reduction in bank guarantees requirements against the licensee fees and other levies. Even for future spectrum auctions, no bank guarantees will be required from telecom operators to secure instalment payments.

Under the relief package, the authorities are planning to return bank guarantees worth Rs 14,000 crore ($1.89 billion) to Vodafone Idea and Rs 8,000 crore ($1.08 billion) to Bharti Airtel if they opt for a four-year moratorium on payment of spectrum dues.

The government has separately allowed 100% Foreign Direct Investment (FDI) under automatic route in the telecom sector, albeit with all safeguards, to attract investment into the struggling telecom sector.

Notably, Vodafone Idea is currently trying to raise funds and is in talks with various investors.

“All telecom services including Telecom Infrastructure Providers Category-I, viz. Basic, Cellular, United Access Services, Unified license (Access services), ….such other services as may be permitted by the department of telecommunications (DoT),” are qualified for 100% FDI under the automatic route,” India’s department of industrial policy and promotion (DPIIT) said in a press statement.

Previously, FDI up to 49% in telecom was under the automatic route, and any investment beyond that had first to be cleared by the government.

Last month, India announced a 4-year moratorium for telecom operators, deferring adjusted gross revenue (AGR) and spectrum payments. It has also abolished the spectrum usage charges (SUC) from future spectrum auctions besides allowing telcos to surrender unused spectrum to the government.

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