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From Credit Suisse’s Ashish Gupta:

Ok, we’ll go first.

We see the effect of Mukesh Ambani’s massive telecoms project, Reliance Jio, in an already competitive market. The full impact won’t become clear for another few quarters, and potentially beyond that if he keeps up the pace and scale of his massive giveaways. Those giveaways are forcing competitors to follow suit and driving down prices/margins across a consolidating sector.

It’s something India’s central bank has now spoken out on and is asking for something to be done about. Specifically, the RBI “asked bank boards to review their exposure to the sector by 30 June and consider making provisions at higher rates.”

From Credit Suisse:

… the RBI has identified telecom sector as one of the stressed sectors, given interest cover has fallen below 1x, and has asked the bank boards to review the same by Jun- 17 and consider making higher provisions on exposures to the sector.

… the telecom and power sectors are two sectors which have seen share of stressed debt rising (debt with interest cover < 1). NPL recognition in both sectors has remained relatively low, despite 67% of power sector and 46% of telecom sector debt having interest cover < 1.

… assuming a 50 bp increase in standard asset provisioning on power and telecom sector debt (currently 40 bp on standard asset) would impact FY18E profit by 5-15% for PSU banks and 1-2% of private sector banks.

Again, what we see are a bunch of India’s private banks wearing a bunch of the telco debt. The same private banks which have been praised for avoiding the kind of bad loan problems that have very publicly plagued their state-run counterparts.

We’d add to close that this all looks like a useful lobbying argument for those who

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