Bank Exposure To Adani Firms Manageable, Analysts Say

A 26 January CLSA report, titled Adani—Where does the debt sit?, said Indian banks’ exposure is under 40% of total group debt, with private banks’ share plummeting from 31% to 8% and public sector banks’ share falling from 55% to 26%.

CLSA estimates that the group has a bank debt of ₹70,000-80,000 crore out of the total ₹2 trillion of debt at the end of FY22. While the group’s debt levels have doubled to ₹2 trillion in three years, the group’s bank debt has increased only by 25%. A greater part of the group’s funding now comes from bonds at 37% and foreign banks at 18% of the debt.

Shares of Indian banks and Life Insurance Corp. of India plunged on Friday amid concerns about their exposure to the Adani Group following the report. The NSE Bank Nifty Index fell 3.13% to 40,345.30, extending declines from the previous session. Bank of Baroda and State Bank of India were among the major losers, falling at least 5% each. LIC’s shares ended 3.4% lower at ₹665.95 apiece.

Hindenburg Research, which in the past has shorted electric truck maker Nikola Corp., said it holds short positions in Adani companies through US-traded bonds and non-India traded derivative instruments.

“Private banks’ exposure is below 10% of total group debt, and most banks (including ICICI, Axis) have indicated that they have largely financed assets with strong cash flows, such as airports/ports. PSU banks do have material exposure (30% 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," CLSA said in its report.

“We estimate that incrementally, banks have only lent ₹15,000 crore, or 15% of the ₹1 trillion the group companies have borrowed over the past three years. Large acquisitions, such as cement, have been fully funded by foreign banks," CLSA added.

Jefferies, too, noted limited risk for banks due to their exposure to Adani group companies.

“From the banking sector’s perspective, debt to this group forms 0.5% of total loans—0.7% for PSU banks and 0.3% for private banks. Our recent conversation with industry participants also indicated that cash-flows and repayment timelines of debt had been conservatively planned. Hence, DSCR (debt service coverage ratio) could be even better. While we watch for developments here, we don’t see material risk arising to the Indian banking sector," Jefferies said.