Home / Industry / Banking /  Adani not among our top 15 group exposures: BoB CEO

Bank of Baroda’s exposure to the Adani group is a fourth of what Reserve Bank of India permits to a group of connected companies. In an interview, Sanjiv Chadha, chief executive at India’s second-largest state-owned lender, said there is no cause for concern on its exposure to Adani group companies. In fact, for a while now, the bank has been taking it easy with its exposure to corporates, compared to its peers, he said. Edited excerpts:

What is your exposure to the Adani Group, and how are you placed?

RBI says that one must manage concentration risks, which means that you cannot lend more than a certain percentage of the net worth to a single company or group. That is set again based upon your capital. Depending on the group, one evaluates how much exposure one should take. You also try to diversify to various companies. In this particular instance, our exposure is only one-fourth of what we can actually lend, and given the size of the group, it is relatively small. This particular group exposure does not figure in the top 15 group exposures of the bank.

The second part, of course, is that the exposure is spread across several companies, out of which about 30% is either in joint ventures with a public sector company, or guaranteed by a public sector company. Therefore, considering they are primarily operating assets, there is absolutely nothing that should give any reason for concern.

Will you be comfortable to allow the group to use existing credit limits or even look at fresh loans?

You always look at everything on merits and that is how you conduct banking. So, anything that passes the test of the bank in terms of risk and return is normally fine. The fact is, we always juxtapose share market movements with what might be the implication for banking exposures. They are not the same. We never lend based on share prices but only on the basis of the balance sheet, which is the book value. The book value would not have changed even by a paisa despite all the share price movement that you have seen.

That book value is based on audited balance sheets which are based on real assets of the company. So, the implications for various parts of the financial sector are entirely different. Nobody has argued that there is a challenge in terms of the assets and how they are performing. There could always be issues but the current context is not something that we should extrapolate to the banking sector without analysing the implications.

While you have given loans against assets, is there a larger corporate governance issue here based on the Hindenburg allegations?

There is no issue for us at all when it comes to our exposure. The nature is such that does not cause concern to us. As I mentioned, for example, some of these companies are joint venture with public sector companies. Others might actually be fully mature assets which are working virtually like annuities.

Is there a broader impact on the corporate sector?

If we were having this conversation 10 years ago when there were other vulnerabilities in the system, you might have had interest rates going up or other broader macroeconomic challenges, there could have been a cause for concern. We are sitting at the best possible time in the cycle, both in terms of where the corporate sector is with deleveraged balance sheets and where banking is in terms of how corporate portfolios are performing. Normally you would have a contagion effect if the ecosystem is such where the contagion can actually be passed on.

Your exposure to the Adani group has declined over the past few years. Was it deliberate?

We have been de-emphasizing the corporate segment. When you de-emphasize the corporate segment, you can pick and choose the kind of exposures you would want to take. We have also been clear we will not be compromising our margins and therefore our corporate growth actually has been relatively much slower as compared to peers, but that is a conscious decision. For us, the portfolio is an outcome of very strict choices we have been making in underwriting standards.

Given the current growth rate, will BoB see private sector banks as closer competitors than state-owned peers?

We have a growth rate which is pretty much similar to HDFC Bank. Look at our numbers, either in terms of growth or in terms of margins and the sectors of growth. Where is it that the private sector was outcompeting the public sector? It was in retail loans. Now, we are growing retail loans at 30%. The slowest growing segment there is home loans at 20%. We are pretty much there, because if you can compete there, you can probably compete anywhere.

Shayan Ghosh
Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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