State Bank of India, the country’s largest bank, and one of the top lenders to the Gautam Adani-led Adani Group, on Friday told CNBC-TV18 that it is not concerned about the conglomerate’s debt serviceability as all exposure to the group from SBI is secured by cash generating assets.

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“While as a matter of policy, we don't comment on individual clients, in the interest of setting the context right, we wish to clarify that SBI's exposure to Adani group is well below the Large Exposure Framework of RBI (LEF). All exposure to the group from SBI is secured by cash generating assets with adequate TRA / Escrow mechanism in place, hence debt service will not be a challenge,” Swaminathan J, MD Corporate Banking & Subsidiaries at State Bank of India told CNBC-TV18.

RBI’s large exposure framework says that the sum of all the exposure values of a bank to a group of connected counterparties cannot be higher than 25 percent of the bank’s Tier 1 capital base.

“In fact, the Indian banking system exposure to the group as a percentage to their total debt has been declining over the last 2-3 years. Same period, their Debt to EBDITA also has been getting better, which helps the group to service its obligations comfortably,” Swaminathan added.

He also told CNBC-TV18 that Indian banks have no exposure build up from Adani’s acquisitions either. “As is known, most of their acquisitions have been financed through overseas borrowings and market instruments, hence there is no exposure build up to Indian banking system on this count,” Swaminathan said.

The comments come amid a massive rout in Adani Group’s listed stocks based on a January 24 report by US-based short seller Hindenburg Research. The 129-page long Hindenburg report said it conducted a two-year investigation into the group, and found potential stock manipulation and accounting fraud by Adani Group. Adani Group denied these allegations, and is considering taking legal action against the short-seller.

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Indian banks’ exposure to Adani Group is limited, says CLSA, Jefferies

Subsequently, concerns emerged about the banking sector’s exposure to Adani Group, with the Banking index under pressure in trade today. In the past two trading days, the banking indices have declined between 4 percent and 5 percent, as against 2 percent decline in the benchmark index. The SBI scrip lost over 5 percent in trade on Friday alone.

SBI told CNBC-TV18 that it is not concerned about any likelihood of a default by the group at this juncture.

“We keep reviewing the non-funded exposures to all large entities periodically and there is no concern or likelihood of any devolvement at this juncture. The bank as a matter of policy keeps a watch on all our exposures to large groups and will take measures from time to time basis our assessment,” Swaminathan told CNBC-TV18.

Indian banks' exposure to Adani

While State Bank of India did not specify the exact quantum of its exposure to the Adani Group, a CLSA report pegged the total exposure of Indian banks at Rs 81,234.7 crores of the total Rs 2.1 lakh crore (about $24 billion) debt of the top 5 Adani Group companies.

“The key message is that Indian banking exposure is less than 40 percent of total group debt. Within this, private banks’ exposure is below 10 percent of total group debt and most banks (including ICICI/Axis) have indicated that they have largely financed assets with strong cashflows, such as airports/ports. PSU banks do have material exposure (30 percent of group debt) but this debt has not increased in the past three years. Most of the incremental funding to the group for new businesses and acquisitions has come via overseas sources. To conclude, the ballpark exposure of private banks is 0.3 percent of FY24 loans and 1.5 percent of FY24 networth. For PSU banks, the exposure is 0.7 percent of FY24 loans and 6 percent of FY24 networth,” CLSA said in a note.

Also read: Rs 4 lakh crore and counting – Here is how much Adani Group companies have lost in two days

As per CLSA, considering the Rs 2.1 trillion average debt of top 5 Adani Group companies, bank debt (term loans, working capital and other facilities) forms 38 percent of the total debt, while bonds/CP constitute 37 percent, 11 percent is borrowing from financial institutions and the remaining 12-13 percent is inter-group lending.

“The share of bank debt in overall group debt has reduced materially and we estimate that incrementally banks have only lent Rs 15,000 crores, or 15 percent of the Rs 1 trillion the group companies have borrowed over the past three years… We are broadly able to corroborate our analysis with the company data, indicating that banks are funding 35-40 percent of Adani Group debt with private banks funding less than 10 percent and PSU banks funding 25-30 percent of the debt,” CLSA said.

(Edited by : Pradeep John)

First Published:Jan 27, 2023 5:49 PM IST