Banks exposure to Adani group ‘insufficient’ to pose credit risk: Fitch Ratings

Fitch estimated that loans to all Adani group entities generally account for 0.8-1.2 per cent of total lending for banks rated by the agency, equivalent to 7-13 per cent of total equity.

Livemint
First Published7 Feb 2023
The offices of Fitch Ratings building appears empty in Canary Wharf.
The offices of Fitch Ratings building appears empty in Canary Wharf.(REUTERS)

The exposure of banks to the Adani Group is ‘insufficient in itself’ to present a substantial risk to the credit profiles of the lenders, said Fitch Ratings in a note on Tuesday.

This comes at a time when investors have been worried about various banks' exposure to the after US based  short-seller Hindenburg Research alleged  improper use of offshore tax havens and stock manipulation by the Adani Group.

Adani Group ha denied any wrongdoings.

Fitch estimated that loans to all Adani group entities generally account for 0.8-1.2 per cent of total lending for banks rated by the agency, equivalent to 7-13 per cent of total equity.

"Even in a distress scenario, it is unlikely that all of this exposure would be written down, as much of it is tied to performing projects," it said.

The ratings agency's unit, CreditSights, said that State Bank of India's exposure to the group is "well-manageable" given its strong buffer of provision reserves. State Bank of India, has an exposure of 27,000 crore.

“We have lent to Adani (group) for projects, which are tangible assets and which have adequate cash generation. They have been able to meet their obligations. The bank’s exposure is around 0.88% of the total loan book," said Dinesh Khara, chairman of SBI.

CreditSights pointed out that SBI has a provision reserves buffer of around 338 billion rupees ($4.08 billion), or around 1% of net loans.

It added SBI also has the capacity to generate significant pre-provisioning operating profit, or income before taking into account future bad debt provisions.

Additionally, most of the bank's exposure to the Adani Group was secured by completed and cash-generating assets while the rest of the exposure was to on-schedule, under-construction projects, said CreditSights.

Although SBI has some non-funded exposure, it comprises letters of credit and bank guarantees that do not relate to equity raising or acquisition activities, it added.

Fitch, however, cautioned that Indian state banks could face pressure to provide refinancing for Adani entities if foreign banks scale back their exposure or investor appetite for the group's debt weakens in global markets.

"This could affect our assessment of the risk appetite of such banks, particularly if not matched with commensurate building of capital buffers."

To allay concerns, the Reserve Bank of India (RBI), as the country's banking regulator, has said that the Indian banking system remains resilient and stable.

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