Dual Reality for MTNL: Sovereign-Backed Bonds Reaffirmed at ‘AAA’ While Bank Loans Languish in ‘Default’

NEW DELHI – Mahanagar Telephone Nigam Limited (MTNL), the state-owned telecom provider for Delhi and Mumbai, continues to exhibit a starkly divided credit profile. In a fresh disclosure to the stock exchanges today, MTNL shared a press release from CARE Ratings dated December 16, 2025, which reaffirms the company's highest rating for its bonds alongside a "Default" status for its bank facilities.

The Sovereign Safety Net: Bonds at ‘AAA’

The most striking feature of MTNL's credit profile is the CARE AAA (CE); Stable rating reaffirmed for its various bond series totaling over ₹24,000 crore.

This top-tier rating is entirely independent of MTNL’s own financial health and is based on:

• Government Guarantee: An unconditional and irrevocable pre-default guarantee from the Government of India (GoI) through the Department of Telecommunications (DoT).

• Structured Payment Mechanism (SPM): A strict timeline-based system where the GoI must infuse funds into a designated escrow account by the T-3 date (three days before the payment is due) if MTNL fails to do so.

• Trustee Monitoring: The mechanism is monitored by a third-party trustee to ensure zero delays in bond servicing.

 

The Standalone Crisis: Bank Loans at ‘D’ (Default)

In contrast to the high-rated bonds, MTNL’s standalone and bank facility ratings remain at CARE D. This indicates that the company is currently failing to meet its debt obligations for bank borrowings that are not covered by the sovereign guarantee.

Key factors behind the 'Default' rating include:

• Liquidity Crunch: As of November 30, 2025, MTNL’s total default amount (interest plus principal) stands at ₹3,208.82 crore.

• NPA Classification: MTNL’s loan account with the Bank of India has been classified as a Non-Performing Asset (NPA) since September 2024.

• Operational Weakness: The company’s staff costs consume roughly 91% of its revenue, which is five times higher than the industry average.

Strategic Shift: BSNL Takes the Reins

A major development highlighted in the report is the service agreement between MTNL and BSNL, effective January 1, 2025. Under this 10-year pact, BSNL has taken over the entire telecommunication operations of MTNL in Delhi and Mumbai.

• BSNL is now responsible for day-to-day operations and capital expenditure (CapEx).

• The goal is to ensure EBITDA-neutral operations for MTNL while utilizing BSNL’s resources to modernize the network.

Despite the operational takeover, the financial burden of legacy high-cost debt and high human resource costs remains a significant challenge for MTNL’s standalone survival.