Loan exposure to Adani Group manageable for SBI, assures CreditSights

People walk past a screen displaying news featuring on Adani Group inside the BSE building in Mumbai, India, on Thursday, Feb. 2, 2023.

State Bank of India's total loan exposure to the Adani Group is well-manageable for the public lender given its strong general provision reserves buffer of Rs 338 billion or 1 percent of net loans, CreditSights, a subsidiary of Fitch Ratings, said in a note on February 7.

SBI had disclosed that its total loan exposure to the Adani Group stood at 0.88 percent, or Rs 270 billion, of total loans as of the quarter that ended in December. Most of these loans are secured against cash-generating assets, and no loans against shares have been provided to the group.

"We see the level of exposure as well-manageable for SBI given its strong general provision reserves buffer (Rs 338 billion or 1 percent of net loans) and PPOP generation capability – the Rs 270-billion exposure is equivalent to 34 percent of annualised 9MFY23 PPOP," the credit researcher said in a note.

PPOP, or pre-provision operating profit, is the amount of income a bank earns in a given time period, before taking into account funds set aside to provide for future bad debts.

The report further noted that most of the bank’s exposure to the group is secured by completed and cash-generating assets, while the remaining are to projects that are still under construction and are on schedule.

"The bank also has some nonfunded exposure, but this comprises letters of credit and bank guarantees and does not relate to equity raising or acquisition activities," it said.

The SBI loan exposure to Adani Group came in focus after a report by an American short-seller, Hindenberg Research, alleged accounting fraud and stock market manipulation by the conglomerate. It hammered Adani Group stocks wiping over $100 billion from the market value.

Last week, SBI Chairman Dinesh Khara clarified that the bank does not envisage the ports-to-mining group facing any challenge to service its debt obligations.

Adding that the group has an excellent repayment record, Khara said that lending to Adani Group projects is with regard to having tangible assets and adequate cash flows.

SBI has reported net profit growth of 49 percent on-year to Rs 335 billion in the December quarter, driven by higher net interest income (NII) and lower provisions.

The stock fell over 10 percent in the week after the Hindenberg Research report was published on January 24.