IDFC First, Yes Bank and IndusInd Bank will be Hit by Vodafone Idea Failure

Vodafone Idea Ltd share is on a tumble since this week. They have fallen over 27% since their closing price of Rs 8.25 on August 2 to Rs 6 today. The prospect of a failure of the telecom company looks like a very distinct possibility. Kumar Mangalam Birla has stepped down from the position of a non-executive chairman of the company after the contents of his letter to the government came out in media reports.

Birla had written to the government saying that he was willing up give up promoter stake in exchange for a government entity stepping in to handle the beleaguered company. There was no response from the government. Vodafone (LON: VOD) has also remained silent.

The refusal by existing promoters of Vodafone Idea to infuse cash in the debt-laden company and the Supreme Court’s recent dismissal of a plea for rectification of alleged miscalculation in adjusted gross revenue dues payable by the company to the government have condemned the telecom operator to bankruptcy, unless it can raise fresh capital.Prospects of fund raising for the company look grim given that any new strategic investor will have to pour in billions of dollars that will large

According to media reports, IDFC First Bank has already marked Vodafone Idea as stressed and provided for 15 per cent of the outstanding debt.While Vodafone Idea is a one-off large account instead of the torrent of defaults seen over the past 10 years, it could have a bearing on the earnings performance of these banks in the coming quarters, as they will have to make hefty provisions against these loan accounts.

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