Adani crisis: S&P says Indian banks may charge higher risk premia

The S&P director noted that estimates suggested the exposure of the Indian banking system to the Adani group was less than 1 percent of their lending books. (Image: Reuters)

While there may not be any significant financial stability risks from the Adani crisis, Indian banks may now conduct "extra due diligence" before making corporate loans and even charge higher risk premia, S&P Global Ratings said on February 14.

"...some of the banks might be a lot more focused on their group exposures. Risk premiums to certain companies and within the Adani umbrella can rise. And finally, in certain cases, if banks have some concerns on governance, there again, they might put in more due diligence," Abhishek Dangra, senior director at S&P Global Ratings, said in a conference call.

"So there are no significant financial spillover risks directly, but there might be some secondary aspects," Dangra added.

The S&P director noted that estimates, although not compiled by S&P, suggested the exposure of the Indian banking system to the Adani group was less than 1 percent of their lending books.

"Second, if you look at the ratings of some of these companies, it's still not at a distressed level," Dangra said, noting that the Reserve Bank of India had released a statement saying the banking sector remains resilient and stable.

Questions have been raised about the risks the Indian banking sector faces from the crash in share prices of Adani group companies following the publication of Hindenburg Research's report on January 25.

The report by the New York-based short-seller alleged multiple types of malpractices, including stock price manipulation by the promoters of the Adani group. Following its publication, the listed Adani group companies lost over $100 billion of their total market capitalisation, which led to the cancellation of flagship company Adani Enterprises' Rs 20,000-crore follow-on public offer.

Also read: No end to woes, now S&P revises outlook on Adani Ports, Adani Electricity to negative

On February 8, RBI Governor Shaktikanta Das said the perception of the Indian banking sector being at risk was only because of the fall in market capitalisation of the shares of Adani group companies.

"When banks lend money to a company or to a group of companies, the banks do not lend on the basis of the market capitalisation of that particular company. The banks lend on the basis of the strength of their company, the fundamentals of their company, or the strength and the fundamentals of their analysis if it is a greenfield project, the anticipated cash flows, and so many other things that go into the appraisal of the banks," Das had said last week.

Deputy Governor MK Jain had added that the exposure to the companies wasn't very significant.

"...given how high the dollar rates are, the domestic banking system is one where many companies have started to look for funds. And there some of the banks might do extra due diligence, which might impact either the cost or the timelines," S&P's Dangra added.