Adani Crisis Unlikely to Pose Credit Risk for Indian Banks, Says Rating Agencies

Weeks after a U.S. short-seller report sparked concerns about Indian banks’ exposure to the Adani Group, two rating agencies have stated that the exposure is not enough to impact the credit profiles of these banks.

Image Credit – The Economic Times 

Fitch Ratings’ Assessment

Fitch Ratings released a note stating that the exposure of Indian banks to the Adani Group is “insufficient in itself” to present a substantial risk to the credit profiles of these lenders. The agency estimated that loans to all Adani Group entities generally account for 0.8%-1.2% of total lending for Indian banks rated by Fitch, equivalent to 7%-13% of total equity.

In the note, Fitch stated that “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.”

Moody’s Investors Service’s View

Moody’s Investors Service echoed Fitch Ratings’ assessment, stating that the exposures are larger for public sector banks than for private sector banks, but they are smaller than 1% of total loans for most banks. The risk to banks can increase, however, if Adani Group becomes more reliant on bank loans, Moody’s warned.

State Bank of India’s Exposure

Image Credit – The Print

Earlier on Tuesday, CreditSights, part of the Fitch Group, said in a separate note that State Bank of India’s (SBI) exposure to the Adani Group is “well-manageable” given its strong buffer of provision reserves. SBI’s total exposure was 0.9% of its total loan book, or around 270 billion Indian rupees ($3.26 billion), according to Chairman Dinesh Kumar Khara. CreditSights pointed out that the country’s largest lender has a provision reserves buffer of around 338 billion rupees, or around 1% of net loans.

Fitch’s Warning to Indian State Banks

Fitch warned 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.

RBI’s Statement

The Reserve Bank of India (RBI), the country’s banking regulator, has said that the Indian banking system remains resilient and stable, in an attempt to allay concerns.

Conclusion

In conclusion, the exposure of Indian banks to the Adani Group, according to Fitch Ratings and Moody’s Investors Service, is not enough to impact their credit profiles. While the risk to banks may increase if the Adani Group becomes more reliant on bank loans, the assessments from the two rating agencies and the statement from the RBI indicate that the Indian banking system remains stable.