RBI is looking into Indian banks' exposure to Adani Group
What's the story
As Adani Group companies nosedive in the stock market, the Reserve Bank of India (RBI) has stepped in to measure the exposure of Indian banks to the conglomerate.
The hasty withdrawal of Adani Enterprises' Rs. 20,000 FPO (follow-on public offer) may have triggered the central bank to seek the present status of loans granted to the group companies.
Context
Why does this story matter?
A report by US-based short seller Hindenburg Research accusing Adani Group of stock manipulation and accounting fraud has caused mayhem in the conglomerate's once impenetrable fortress.
The listed companies belonging to the group have been consistently trading in red (except for occasional relief) since the report was published.
With investor trust quickly disappearing, concerns about banks exposed to the group are also rising.
Debt
Indian banks' exposure to Adani Group's total debt is 38%
The RBI has approached some of the major lenders to the Adani Group and is working with them to understand their exposure to the conglomerate's companies.
Per a report by investment firm CLSA, the exposure of Indian banks to Adani Group's total debt is about 38%. In this, private banks' exposure is less than 10%.
Lenders
Punjab National Bank has an exposure of Rs. 7,000 crore
Some banks have revealed their exact exposure to Adani Group. Punjab National Bank has a total exposure of Rs. 7,000 crore, while Bank of Baroda's exposure stands at Rs. 4,000 crore.
IndusInd Bank clarified that the bank's outstanding loans to the conglomerate only form 0.49% of its loan book.
Other banks are yet to disclose information about their exposure to the group.
Declining exposure
Exposure of Indian banks to the conglomerate has been declining
The exposure of Indian banks to Adani Group has been declining over the years.
"As is known, most of their acquisitions have been financed through overseas borrowings and market instruments, hence there is no exposure built up to the Indian banking system on this count," said Swaminathan J, managing director of SBI's corporate banking.
Most banks believe that debt service won't be a challenge.
Foreign lenders
Citigroup and Credit Suisse have stopped accepting Adani Group securities
The RBI's decision to evaluate Indian banks' exposure to Adani Group may have been influenced by the recent actions of two global lenders.
Citigroup's wealth arm has stopped accepting securities of Adani Group companies from clients as collateral for margin loans.
Similarly, Credit Suisse Group AG is not accepting bonds of the group companies as collateral for margin loans to its private banking clients.