Bank Guarantee Requirement for Telecom Companies Lowered by DoT

The Department of Telecom slashed the performance and financial bank guarantee requirement of telecom operators to 20 per cent of the current amount held by the government as part of the telecom reform measures announced last month.

The cabinet last month approved a relief package for the telecom sector that includes a four-year moratorium on payment of statutory dues by telecom companies as well as allowing 100 per cent foreign investment through the automatic route. As part of the measures, it also proposed a reduction of bank guarantee requirement of telcos by 80 per cent.

As per a DoT notification, while financial bank guarantee will remain at Rs 50 crore, Rs 25 crore and Rs 5 crore for telcos licensees for category A, B and C service area to be submitted before signing the licence agreement, the amount of guarantee (both performance and financial bank guarantee) will now be 20 per cent of the estimated sum payable (of the licence fee for two quarters).

Accordingly, under the amended norms, the performance bank guarantee requirement for telcos will fall to Rs 44 crore from Rs 220 crore mandated under the earlier system. The financial bank guarantee (FBG) requirement will also come down to almost Rs 8.8 crore per circle against Rs 44 crore in earlier system.

The measure is expected to shore up the liquidity of the telcos and unlock funds that are currently parked in banks to secure the guarantees.

DoT notification said that the proposed changes would not apply to telcos in cases where a bank guarantee has been furnished due to a court order or such guarantees are the subject matter of litigation. Bank guarantees of licensee under corporate insolvency resolution process (CIRP) or facing liquidation would also not be able to avail lower requirements.