MTNL Fails to Pay Loan Interest to Bank of India

State-run telecom company MTNL (Mahanagar Telephone Nigam Limited) has said that it has not been able to deposit the required funds in the Escrow Account for the upcoming interest payment on one of its bonds. MTNL stated that it was unable to fund the 4th semi-annual interest due on July 20, 2025, for its 7.59% MTNL Bond Series VIIIA (ISIN: INE153A08154).

According to a regulatory filing made by MTNL on April 19, the company has defaulted on loan repayments worth ₹8,346.24 crore. These defaults happened over a span of seven months, from August 2024 to February 2025. The bank wise default is as follows:

• ₹3,633.42 crore to Union Bank of India
• ₹2,374.49 crore to Indian Overseas Bank
• ₹1,077.34 crore to Bank of India
• ₹464.26 crore to Punjab National Bank
• ₹350.05 crore to State Bank of India
• ₹266.30 crore to UCO Bank
• ₹180.3 crore to an unidentified bank

State Bank of India has already classified MTNL Loan account as NPA.

Tri-Partite Agreement between Bank and MTNL

As per the Structured Payment Mechanism outlined in the Tri-Partite Agreement (TPA) signed between MTNL, the Department of Telecommunications (DoT), and Beacon Trusteeship Limited, MTNL is required to deposit the interest amount into the Escrow Account 10 days before the due date. The Escrow Account is maintained with Bank of India.

However, MTNL has now disclosed that due to insufficient funds, it could not deposit the required amount in the account before the deadline.

Bonds Are Backed by Government Guarantee

It is important to note that all bonds issued by MTNL carry a Sovereign Guarantee from the Government of India. This means that in case MTNL fails to make payments of interest or principal, the debenture trustee can invoke the guarantee, and the Government of India is then obligated to step in and make the payment on behalf of MTNL.

The terms of this Sovereign Guarantee are part of the Tripartite Agreements, which were submitted to the stock exchange (BSE) when the bonds were originally listed.

If MTNL continues to be unable to make the interest payment, the debenture trustee may invoke the Sovereign Guarantee, following the procedure laid out in the TPA. Investors are now watching closely to see how the situation develops, especially with the interest due date approaching on July 20, 2025.

The good news for bondholders is that these MTNL bonds come with a Sovereign Guarantee. This means that if MTNL is unable to pay either the interest or the principal, the Government of India is legally responsible for making the payment.

The debenture trustee (Beacon Trusteeship) can invoke this guarantee — that is, officially ask the government to step in and pay on behalf of MTNL.