New Delhi: Mobile phone service providers paid up on Monday for the 3G spectrum they bought, making the government richer by almost Rs70,000 crore and causing a sharp drop in the amount of excess cash in the banking system.
Commercial banks were forced to borrow from the Reserve Bank of India (RBI) for the first time this fiscal as money flowed to government coffers. The cost of overnight borrowings jumped.
“All the winners have paid their dues,” said a senior department of telecommunications (DoT) official, who didn’t want to be named because he isn’t authorized to speak to the media. “We did not expect any defaults as there was a significant loss to be made by the companies if they defaulted. They would have lost the earnest money deposited in the beginning of the auction.”
Bharti Airtel Ltd, Vodafone Essar Ltd, Reliance Communications Ltd, Idea Cellular Ltd, Aircel Ltd, Tata Teleservices Ltd and STel Ltd paid for the radio waves that will enable them to launch high-speed wireless data and multimedia services in the world’s fastest growing mobile phone market.
State-owned operators Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) also paid for the spectrum that they were allotted at the beginning of last year. Private sector phone companies will have to wait until September for spectrum allocation.
On Monday, only Rs540 crore of excess cash in the banking system was parked with RBI, the lowest this fiscal. Banks borrowed Rs4,250 crore from the central bank. Until a week ago, banks were parking an average of Rs40,000 crore with RBI daily.
As the liquidity crunch hit, the yield on 10-year government bonds rose 10 basis points from its intraday low to close at 7.56%. One basis point is one-hundredth of a percentage point.
Bharti Airtel, India’s biggest mobile phone firm, had bid the most in the auction, Rs12,300 crore for 13 telecom circles, or operating areas. Vodafone Essar paid Rs11,617.86 crore. State-owned BSNL also paid Rs10,186.56 crore for the radiowaves across India, except in Delhi and Mumbai. MTNL, which offers services in Delhi and Mumbai, paid Rs6,564 crore.
The auction took place at a time when telecom firms are reeling under intense price competition that’s squeezing their profit margins. The phone companies will need to invest more money in rolling out 3G networks, exposing them to an increased debt burden.
“The third generation spectrum auction will have a negative impact on the credit metrics of most private telecom operators in the short to medium term,” said Nitin Soni, an analyst at the ratings company Fitch.
“Assuming debt funded payments take place, the high upfront licence and spectrum fees would significantly increase net debt levels for most of the telcos—and financial leverage can deteriorate,” he added.
Anup Roy in Mumbai contributed to this story.