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Shamik Paul
Vishwanath Kulkarni

Bangalore, Feb. 1 Large Indian IT vendors have significantly enhanced provision for doubtful debts anticipating payment delays from customers who have filed for bankruptcy protection or have merged into other companies.

Provision for doubtful debts refers to the amount of money a company sets aside for receivables that it thinks it would not be able to recover.

“The companies may be doubtful of recovering money from clients that have either gone bankrupt or have been merged. The uncertainty in such a situation remains,” an analyst with a Mumbai-based brokerage said.

However, he clarified that these are doubtful debts, which could be recovered, and not necessarily bad debts.

“Also, it is very much possible that the number of clients that might delay on payments has gone up as many of them are facing financial challenges,” another analyst said.

Tata Consultancy Services has made a provision of Rs 169.26 crore for bad debt in the December quarter, a 48.3 per cent increase on year-on-year basis, while sequentially it grew by 9.4 per cent.

For Infosys Technologies Ltd, the amount of provision for doubtful debt increased 100 per cent Y-o-Y to Rs 92 crore, while on sequential basis it went up by 12.2 per cent.

Wipro Ltd reported a 78.8 per cent Y-o-Y increase to Rs 193.3 crore, while on sequential basis it grew by 43 per cent. Indian vendors are facing uncertain times due to the economic downturn. The financial sector, from which the Indian vendors earn over a third of their revenues, has seen several bankruptcy filings as well as forced mergers due to the failure of large institutions such as Lehman Brothers, Bear Stearns, Wachovia and Merill Lynch.

Other verticals, including telecom and automotive, are also a cause of concern for some of the companies.

For Wipro, the increase in provision for doubtful debt is largely due to Nortel Networks, which filed for bankruptcy protection recently.

“In other instances where clients have gone bankrupt, we have been able to recover most of our outstanding. We should be able to recover it in this case as well, but the recovery process will take some time,” said Mr Rajendra Shreemal, Head of Treasury, Wipro.

Infosys makes a provision for all debts that is outstanding for more than 180 days, said Mr V. Balakrishnan, Chief Financial Officer, Infosys. When the company receives the money at a later date, the provision is written back into the profit and loss account, he added.

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