Bank credit profiles not at much risk from Adani exposure, says Fitch

Indian banks’ publicity to the Adani Group is not that giant to current substantial risk to their standalone credit profiles, stated ranking company Fitch on Tuesday.

“We believe loans to all Adani group entities generally account for 0.8%-1.2% of total lending for Fitch-rated Indian banks, equivalent to 7%-13% 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 stated.

The issuer default rankings of all home banks proceed to be pushed by expectations that the lenders would obtain extraordinary assist from the sovereign if the necessity arose, the ranking company stated.

Following allegations of inventory manipulation and accounting fraud by US-based Hindenburg Research on January 24, the Adani group noticed its shares plunge, dropping Rs 9.1 trillion in market capitalisation until the tip of final week.

Banks have an publicity of Rs 80,000 crore to the conglomerate, with State Bank of India main the pack with Rs 27,000 crore. Last week, the RBI requested banks to present details about their excellent publicity to the group and the sanctioned quantities.

According to Fitch, loans involving tasks below building and people at the corporate degree may have better vulnerability. However, even when exposures have been completely provisioned for it might not impression Indian banks’ viability rankings as lenders have sufficient headroom at their present ranking ranges, the ranking company stated.

Other analysts too have been of the view that the banking sector’s publicity to the Adani Group was not a trigger for concern.

“Now the key message from all the disclosures that have come from PSU banks as well as private sector banks is that exposure to the large conglomerate group is manageable and small,” stated Suresh Ganapathy, head, financials analysis at Macquarie Capital.

“All around very strong numbers by the PSU banks SBI, BOB (Bank of Baroda). Record low credit costs, high margins, high ROA, very strong loan growth. Guess it can’t get better than this,” he stated.

Refinancing strain

Fitch warned, nonetheless, that within the occasion of international banks scaling again their publicity or weak international funding urge for food for the Adani Group’s debt, state-owned banks may face strain to offer refinancing for the home conglomerate.

“This could affect our assessment of the risk appetite of such banks, particularly if not matched with commensurate building of capital buffers. However, such a scenario would underpin the quasi-policy role of state-owned banks and reinforce our sovereign support expectations,” Fitch stated.

The ranking company famous that the results of such refinancing pressures on state-owned banks could possibly be amplified if the Adani episode augments financing challenges for different Indian company entities, which might then improve reliance on native financial institution borrowings.

Fitch stated that there have been “tail risks” that the aftermath of the Adani disaster may affect India’s sovereign ranking.

“The Adani group plays an important role in India’s infrastructure construction sector. Infrastructure development may slow, curbing India’s sustainable economic growth rate, if its ability to contribute to the government’s infrastructure rollout plans is impaired, though we believe the impact on growth would be likely to be small,” the company stated.

Moreover, if the Adani episode has vital detrimental spill-overs to the bigger company sector or results in a pointy rise in value of capital for corporations, India’s medium-term development could possibly be damage, Fitch stated.

The ranking company nonetheless nonetheless views the underlying foundations of India’s agency development outlook as sound, saying that dangers of huge detrimental spill-overs have been low.