The Reserve Bank of India has approved the proposal to allow mobile phone companies to mortgage airwaves, a move that will allow telcos to use spectrum as collateral and raise funds from banks for the upcoming auctions. 

The RBI has said that banks will be allowed to seize airwaves in the event of a default or cancellation of mobile permits. Banks will enjoy the rights to sell, transfer, assign, exchange and dispose of the airwaves without any restraining conditions to protect their interests, the central bank said in May 30 communication to the finance ministry. 

The finance ministry has endorsed the RBI stance and has asked the telecom department (DoT) to expedite policy changes to allow spectrum to be used as collateral by lenders of telecom companies, saying this will 'boost the confidence' of banks and allow mobile phone companies to raise loans. 

The RBI nod is significant, as the Supreme Court has set an August 31 deadline to complete the spectrum auction. Telcos had warned that they would be unable to pay the minimum price prescribed by sector regulatorTrai as banks had stopped lending to telecom companies after the 2G spectrum scam that resulted in the Supreme Court quashing 122 mobile permits issues by former telecoms minister A Raja. 

Trai had recommended that the reserve price for each unit of airwaves in the 1800 MHz band be set at 3,622 crore in the upcoming sale. The total debt of the telecom industry is estimated at 2,75,000 crore. 

The central bank's approval to treat 'spectrum as tangible security' endorses telecom regulator Trai's recent recommendation that mobile operators be allowed 'to mortgage airwaves they hold to raise funds from financial institutions'. 

Trai had said that in the event of default, lenders would be allowed to sell the airwaves under the telecom department supervision and added that proceeds in excess of the liability would have to be remitted to the government. 

But the RBI has sought that 'no restraining conditions' be imposed on lenders when they transfer, sell or exchange airwaves. The telecom commission, the highest decision making body of the DoT, has given an in-principle approval to Trai's suggestion, while also deciding to seek the law ministry's and the RBI's opinion on this issue. 

A DoT official said that the Empowered Group of Ministers on spectrum auction, headed by FM Pranab Mukherjee, may consider the RBI's stance and approve the policy change permitting spectrum mortgage, in its next meeting later this month.