Exposure of big lenders such as LIC and State Bank of India (SBI) to the crisis-ridden Adani group is well within the permissible limits as stated by these lenders, said Union Finance Minister Nirmala Sitharaman in an interview with Network18 Group Editor Rahul Joshi on February 3.
“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.
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Earlier, LIC managing director and chief executive officer Siddhartha Mohanty had said that the insurance company is positive on the investments in the Adani group.
Speaking to CNBC-TV18, Mohanty added, "Adani investments are within our prudent norms, "adding, "We talk to companies that we invest in as a routine." As far as SBI is concerned, the bank has around Rs 21,000 crore exposure to the embattled group, Bloomberg reported.
On February 2, Moneycontrol reported that the Reserve Bank of India (RBI) is looking into the details of banks' exposure to Adani group companies and has sought the present status of these loans.
The RBI has already reached out to some of the major banks which are the lenders to the group and are engaging with lenders to verify the exposure details, the report said.
According to a report by CLSA, bank debt that includes term loans, working capital and other facilities forms just 38 percent of the total debt. 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.
The Hindenburg, a US-based short-seller, highlighted the huge debt burden and overvaluation of Adani group companies in its scathing report unleashing a rout in the company's shares in subsequent days. The company has defended its position subsequently but had to cancel an earlier planned Rs 20,000 crore follow-on share sale after its share price plummeted.
Banking system comfortable
In general, the Indian banking system has significantly improved health in terms of gross NPAs and recoveries, Sitharaman said. The Indian banking sector is currently at a comfortable level supported by a decline in bad loan levels and recovery from unpaid accounts, the FM said.
“Having gone through the twin balance sheet problem, the Indian banking sector is at a comfortable level with NPAs coming down to absolute low levels and recovery happening,” the FM said.
The GNPA ratio of scheduled commercial banks (SCBs) 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.
