(This story originally appeared in on Nov 15, 2019)

Lenders said they will have no recourse should Vodafone Idea default on its payment obligations to the government. The company may end up being the biggest non-performing asset ( NPA ) for lenders because of lack of securities, guarantees or fresh equity from promoters.Banks have an exposure of close to Rs 1,00,000 crore in fund and nonfund based agreements. A large part of this is in the form of bank guarantees as capital expenditure was limited and most of the expenses were on account of payments to government.Vodafone Idea said that it has accounted for the estimated liability of Rs 27,610 crore in licence fees and Rs 16,540 crore related to spectrum usage charges up to September 30, 2019, including interest, penalty and interest on penalty of Rs 33,010 crore. This has to be paid in 90 days from the court order.A default would cause the government to invoke Vodafone Idea’s bank guarantee issued by lenders. Once the guarantee is invoked, the nonfund exposure of lenders would be converted into a loan. As the company is not in any position to repay the debt, it would have to be classified as an NPA. Given that this has the potential to become one of the biggest NPAs in banking, stocks of lenders with an exposure to Vodafone could open lower.“Both the promoters — Birlas and Vodafone — have made it clear that they are not going to infuse fresh equity. There is no corporate guarantee or crossholding of shares by promoters that will put pressure on them to avoid a default and they have indicated that they will take the insolvency route,” said a banker.Lenders said the grim outlook has been conveyed to the government, which has set up a committee of secretaries that will take stock of the financial stress in the telecom sector and suggest steps to provide relief to telcos.Banks said lenders had not insisted on a provision earlier as TDSAT had issued an order in 2015 that was more in favour of telecom companies. By the time the case progressed in the Supreme Court, telcos did not have the cash flows to make provisions for the contingent liability.Lenders do not see a way out of this as the payment has been called for on the basis of the Supreme Court order. “One way out would be if the interest component was waived and the payment is allowed to be amortised over a period of time. However, this would require a legal opinion as the SC order was clear on what the companies should pay,” said a banker.