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Published: Feb 4, 2023
Updated: Feb 4, 2023

RBI on Adani: Banking sector remains resilient and stable

The RBI statement came shortly after Chairman of country's largest lender State Bank of India (SBI) and Union Finance Minister Nirmala Sitharaman dismissed any concerns for banking sector due to Adani exposure.

The Reserve Bank of India (RBI) on February 3 said India's banking sector remains resilient and stable, amid speculations of potential risk in banks' exposure to the crisis-ridden Adani group.

The Adani group plunged into a crisis after a research report by US-based short seller Hindenburg alleged of gaps in the group's financials, high debt burden and risk of overvaluation, leading to a carnage in the shares of group companies.

Adding to the woes, the steep fall in share price forced Adani group to cancel its proposed Rs 20,000 crore follow-on share sale.

Subsequently, concerns arose as reports said a number of large Indian banks have both fund and non-fund based exposure to the group, which a CLSA report estimate to be 38 percent of the total debt of the firm.

That apart, bonds/commercial papers constitute 37 percent, 11 percent is borrowing from financial institutions and the remaining 12-13 percent is inter-group lending, the report said.

RBI steps in

The RBI statement came shortly after country's largest lender State Bank of India (SBI) dismissed any concerns due to its Rs27,000 crore exposure to Adani group, saying this constitutes less than 0.9 per cent of the loan book.

“As per the Reserve Bank’s current assessment, the banking sector remains resilient and stable,” the RBI said in the statement released on Friday evening. Typically, the RBI issues such statements to calm stakeholders when banking system is gripped with fears of a potential liquidity crisis following certain events.

Making a tangent reference to the Adani Group, the RBI said it is monitoring the exposure of the Indian banking sector to a “certain business conglomerate”.

“There have been media reports expressing concern about the exposures of Indian banks to a business conglomerate. As the regulator and supervisor, RBI maintains a constant vigil on the banking sector and on individual banks with a view to maintaining financial stability,” the RBI said.

The banking regulator said it has a Central Repository of Information on Large Credits (CRILC) database system where the banks report their exposures worth Rs 5 crore and above. This data is used for monitoring purposes.

Check highlights of Finance Minister Nirmala Sitharaman's exclusive interview here

“Various parameters relating to capital adequacy, asset quality, liquidity, provision coverage, and profitability are healthy and banks are also in compliance with the Large Exposure Framework (LEF) guidelines issued by the RBI,” the central bank added.

FM comments

Earlier in the day, in an exclusive interview to Network 18 Editor Rahul Joshi, Finance Minister Nirmala Sitharaman said the exposure of big lenders such as LIC and the State Bank of India (SBI) to Adani group is well within the permissible limits -- as stated by these lenders.

“They are not overexposed. Their exposure is very well within permitted limits,” said Sitharaman in the interview two days after announcing the Budget 2023.

This was the first time the FM responded to the Adani crisis and about the Indian lenders' exposure levels to the group. After the Adani group plunged into a crisis following the accusation raised by the Hindenburg research report, there have been concerns about banks' exposure to the group.

Indian banks' health

In recent years, Indian banks have seen the level of bad loans declining following a clean up exercise prodded by the regulator. The Gross NPA ratio of scheduled commercial banks fell to a seven-year low of five percent in September 2022, the RBI said in its financial stability report (FSR) on December 29.

The net non-performing assets (NNPA) dropped to a 10-year low of 1.3 percent in September 2022, the FSR report said. Indian banks have cut down a major chunk of their bad loans after a 2015 asset quality review initiated by the central bank in 2015 and also by moving large corporate NPA cases to the bankruptcy courts. This helped reduction in overall NPA levels.

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RBI Assures Stable Banking Sector Amid Adani Group Crisis

The Reserve Bank of India (RBI) has issued a statement regarding the stability of India's banking sector amid concerns of potential risk in banks' exposure to the crisis-ridden Adani group. The RBI assured that the banking sector remains resilient and stable and is being constantly monitored.

Constant Vigil by RBI

The RBI stated that it maintains a constant vigil on the banking sector and on individual banks with a view to maintaining financial stability. The central bank has a Central Repository of Information on Large Credits (CRILC) database system where banks report their exposures worth Rs 5 crore and above for monitoring purposes.

Healthy Banking Parameters

The RBI added that various parameters such as capital adequacy, asset quality, liquidity, provision coverage, and profitability are healthy and banks are in compliance with the Large Exposure Framework (LEF) guidelines issued by the RBI.

FM Reassures Adani Group Exposure Within Limits

Finance Minister Nirmala Sitharaman, in an exclusive interview, assured that the exposure of big lenders such as LIC and State Bank of India (SBI) to Adani group is well within the permissible limits. The FM's response was in response to concerns raised about banks' exposure to the Adani group after a research report by US-based short seller Hindenburg alleged gaps in the group's financials.

Declining Bad Loans and Improved Bank Health

In recent years, Indian banks have seen a decline in bad loans following a clean-up exercise prompted by the regulator. The Gross NPA ratio of scheduled commercial banks fell to a seven-year low of 5% in September 2022, according to the RBI's financial stability report. The net non-performing assets (NNPA) also dropped to a 10-year low of 1.3% in September 2022.

RBI says banking industry resilient

In conclusion, the RBI has assured the stability of the banking sector amid the crisis surrounding the Adani group. The central bank is constantly monitoring the exposure of the Indian banking sector and has assured that various banking parameters are healthy. The FM has also reassured that the exposure of big lenders to the Adani group is within the permissible limits. Indian banks have improved their health in recent years with a decline in bad loans and improved asset quality