Domestic bankers in talks as SC’s verdicts threaten over USD 6 bn in loans

Any failure to recoup the money adds to stress in the banking sector, which is already dealing with an increased level of bad loans and reduced profits because of the impact of the pandemic. 

Last week, the Supreme Court effectively blocked Future Group’s $3.4 bn sale of retail assets to Reliance Industries, jeopardising nearly $2.69 bn the retail giant owes to domestic banks. 

That ruling was delivered days after the Supreme Court rejected a petition to allow telecom firms to approach the Department of Telecommunications to renegotiate outstanding dues in a long-running dispute with Indian telecom players. 

That raises concerns, bankers say, over whether Vodafone Idea will repay some Rs 300 bn ($4.04 bn) it owes to domestic banks and billions of dollars more in long-term dues to the Centre. 

Two bankers, speaking on condition of anonymity said negotiations were taking place to try to limit potentially severe consequences. Loans to Future worth nearly Rs 200 billion were restructured earlier this year, giving it more time to come up with repayments due over the next two years, but that was on the premise that Reliance would bail it out, the bankers said. 

Future group did not immediately respond to a request for comment. 

Should Future be taken to a bankruptcy court, bankers say they are concerned they will have to take haircuts on the loans of more than 75%. 

“The immediate apprehension is that the restructuring deal will fall through for banks by December,” said a banker at a public sector bank that has lent money to Future. 

Future’s leading financial creditors include India’s largest lender State Bank of India, along with smaller rivals Bank of Baroda and Bank of India (BoI). 

BoI, the lead bank in consortium lending to Future, did not immediately respond to an emailed request for comment. Banks have also started discussing Vodafone’s debt to lenders of nearly Rs 300 billion. Top lenders to Vodafone include Yes Bank, IDFC First Bank and IndusInd Bank, as well as other private and state-owned lenders. Vodafone, Yes Bank, IDFC First Bank and IndusInd did not immediately respond to a request seeking comment. 

“Even though banks have the option of restructuring loans in case the company defaults, it will only make sense if there is clear cash flow visibility, which is not the case right now,” a senior banker at a public sector bank said on condition of anonymity. 

Already, at the end of March, Indian banks had total non-performing assets of Rs 8.34 trillion ($112.48 billion), the government has said. It has yet to provide more updated figures.