International banks Standard Chartered and Citigroup have fallen out with Abu Dhabi-based telecoms firm Etisalat over $400 million which they lent to Etisalat's now defunct Indian affiliate, according to three banking sources familiar with the matter.

As a result the banks, two of the most active global lenders in the region, did not participate in the $8 billion financing which was arranged in April to back Etisalat's successful bid for Vivendi's 53 per cent stake in Maroc Telecom , the sources said.

Facing tougher capital rules since the financial crisis, banks have been getting tougher on trying to recover debts.

Reuters reported in August that lenders including Deutsche Bank and HSBC were involved in heated negotiations with Saudi Telecom (STC) over a $1.2 billion loan which the state-controlled company had informally backed for its Indonesian unit.

The issue was resolved after STC offered to repay about 90 per cent of the loan, mainly through a sale of the arm.

The latest tussle concerns a loan made to Etisalat's Indian affiliate Etisalat DB (EDB), in which it held a 45 per cent stake, which Etisalat backed through "a letter of support" - a lending practice where a parent company issues an acknowledgment of support to its subsidiary's loan proposal but does not have a legal obligation concerning the loan, the sources said.

In 2012, an Indian court cancelled EDB's wireless network operating licences along with those held by seven other companies due to a government scandal over how the 2008 licensing round was conducted. Etisalat consequently wrote off the 3.04 billion-dirham ($828 million) value of its Indian operations and Etisalat DB eventually closed.

The loan negotiations now revolve around whether the banks have a call on Etisalat to recover their money. However, Etisalat replaced much of its management team in 2011-2012, which makes the negotiations more complicated as the personalities involved in the original deal have left, the sources said.

StanChart has around $300 million exposure on the loan, while Citi has the rest, they said.

The loan value in dollar terms has fallen in recent months due to a sharp drop in India's currency, one of the sources said, declining to provide the exact amount.

"Etisalat DB is a separate legal entity incorporated in India, prior to Etisalat's investment in it," Etisalat's chief financial officer Serkan Okandan told Reuters by email when asked if his company had any liability for recovery of the debt.

"Etisalat is not and has not ever been liable for the debts and liabilities of EDB," Okandan said.

A spokesman for Standard Chartered in Dubai declined to comment, as did a spokesman for Citigroup. - Reuters