Banks’ exposure to Adani Group: How big a worry is it really?

Global banks weigh halting fresh credit to India's Adani after US indictment: Report

Gautam Adani's indictment in New York for his alleged involvement in a multi-million-dollar bribery and fraud scandal sparked a steep sell-off in Adani Group stocks and those of its major lenders. While Adani Group shares dropped by up to 20 percent, public sector lenders such as State Bank of India (SBI), Bank of Baroda (BoB), and Punjab National Bank (PNB) saw their stocks fall by as much as 7 percent on November 21.

Despite the sharp decline, market experts believe the reaction is temporary and expect stocks to recover once clarity and positive updates emerge from Adani Group. They recommended investors use the opportunity to "accumulate" PSU bank stocks, highlighting their strong fundamentals.

Ankit Narshana, AVP of Research at Nuvama Wealth and Investment said that the market reaction has been excessive. "The $250 million in bribes alleged in the indictment isn’t as significant as the market has priced in. The market has already discounted much of the expected exposure, and we’ve seen a 10 percent drop in Bank of Baroda and 5-6 percent fall in SBI. Most of the damage appears to have already been done,” he remarked.

According to disclosure by banks, India's largest lender SBI's outstanding exposure to Adani Group companies stood at Rs 27,000 crore as of December 2022, while PNB's stood at Rs 3,300 crore, and Bank of Baroda's stood at Rs 5,300 crore.

Deepak Jasani, Head of Retail Research at HDFC Securities, echoed this sentiment, advising investors to buy PSU bank stocks during the downturn. He reassured that concerns about exposure to Adani Group loans are overstated, citing strong corporate asset quality and provisioning by these banks.

In the recently concluded September quarter, SBI's net non-performing asset (NNPA) ratio improved to 0.53 percent from 0.57 percent a year back. Similarly, PNB's NNPA ratio reduced to 0.46 percent in Q2FY25 from Q2FY24 and Bank of Baroda's NNPA improved to 0.6 percent in Q2FY25 and 0.76 percent in Q2FY24.

Vinod Nair, Head of Research at Geojit Financial Services, also believes this knee-jerk reaction would fade as the Adani Group provides clarifications or positive updates. However, he warned that the negative sentiment could persist in PSU lender stocks until more clarity emerges.

“We expect a comparable cautionary period until further details are available. However, we do not anticipate a repeat of the steep 50 percent decline in Group stocks seen within 10 days of Hindenburg’s first report,” Nair added.

(An earlier version of the graphic with this story incorrectly reported the total outstanding loan figures for banks. It has since been updated to include both the total outstanding loan figures and the loans specifically outstanding to Adani Group companies.)

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