Telcos may find it difficult to get loans

The troubles for Indian telecom companies are increasing day by day. First they are faced with a regulator which cares more for filling up government coffers than their business interests. Second, it is faced by hyper competition thanks to which they are unable to raise rates and are resultantly operating on wafer thin margins (if any). Third, they are already plagued by heavy debt to take care of their operational as well as capital needs, which in turn are increasing day by day. And now they would find it tough to raise more money at least if they decide to approach the banks.

The Reserve Bank of India (RBI) has laid preconditions for financing telecom companies for the upcoming 2G spectrum auction. The guidelines are meant to protect the banks against possible defaults. But at the same time they would make it difficult if not impossible for the telecom operators to get loans. Especially for the smaller operators. The banks would insist on stricter technical evaluations for projects, higher collaterals and current financial strength of the companies. The only way they would be willing to lend to the weaker companies would be if there is a possibility for tariff increase. But here again the regulator is not keen on tariffs going up too drastically. All in all the bad days for telecom operators are far from over.