Major Indian banks' improved financial metrics and low exposure to the Adani Group support their assertions that any fallout from the company's troubles does not pose any significant credit profile risk.
State Bank of India, IndusInd Bank Ltd. and Axis Bank Ltd. said their exposures to Adani Group remain below 1%, following accusations from Hindenburg Research that the conglomerate had engaged in stock manipulation and accounting fraud. Adani Group has denied the allegations. Punjab National Bank publicly disclosed its exposure to the group, while Bank of Baroda said its exposure was about 25% of the central bank's prescribed limit.
Most large banks reduced nonperforming loans over the past three years and posted improvements in key financial metrics, such as profitability and total capital ratio, according to S&P Global Market Intelligence data. Their return on average equity, a measure of profitability, has grown since the fiscal year ended March 31, 2019, though the common equity tier 1 ratios of some had declined.
Fears about the Adani saga hurting lenders and the broader financial markets led to protests in India's Parliament. It also prompted a statement from the Reserve Bank of India on Feb. 3 that, as per its current assessment, "the banking sector remains resilient and stable."
"Various parameters relating to capital adequacy, asset quality, liquidity, provision coverage and profitability are healthy," the central bank said. It added that Indian banks are in compliance with its Large Exposure Framework guidelines.
Concerns over control
In a Jan. 24 report, Hindenburg alleged that Adani "engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades." It had also taken a short position in Adani Group companies. Gautam Adani, the founder of Adani Group, saw more than half of his wealth vanish after Hindenburg accused his family of controlling most of the shares in the group's companies via opaque investment entities registered outside India.
In a Jan. 29 statement, Adani Group described the Hindenburg report as a "malicious combination of selective misinformation," adding that the investment research firm "concealed facts relating to baseless and discredited allegations to drive an ulterior motive." The group did not respond to an emailed request for comment from Market Intelligence.
While the exposure of banks does not pose any immediate risk of default, they will have to be watchful of the developments at the group, said Anand Dama, head of banking, financial services and insurance at Emkay Global Financial Services.
Overleveraged borrowers
"Banks need to be cautious of such overleveraged corporate groups in the future," Dama said. "Banks are in the business of taking of measured risk and can't avoid an exposure to large and growing conglomerates."
State Bank of India said in a Feb. 9 earnings call that its exposure to the Adani Group is 0.88% of its loan book, which amounted to 31.262 trillion rupees as of Dec. 31, 2022.
In separate statements, Axis Bank pegged its exposure to the group at 0.94% of its net advances, while IndusInd Bank said it total loans outstanding toward the group is at 0.49% of its loan book.
Punjab National Bank's exposure to the Adani Group is about 70 billion rupees, the bank's CEO, Atul Kumar Goel, said during a Jan. 30 earnings call. This figure represented about 0.82% of the bank's gross advances of 8.568 trillion rupees as of Dec. 31, 2022.
Sanjiv Chadha, managing director of Bank of Baroda, said during a Feb. 3 earnings call that the lender's exposure to Adani does not figure in the top 15 large exposures of the bank.
"There is no issue for the bank when it comes to our exposure," a company spokesperson said via email. "The exposure has reduced over the past three years, as per [Large Exposure Framework] guidelines of [the central bank]."
State Bank of India, Axis Bank, IndusInd Bank and Punjab National Bank did not respond to emailed queries from Market Intelligence on their exposure to the group and whether the outstanding loans are a matter of concern.
As of Feb. 24, US$1 was equivalent 82.95 Indian rupees.