Adani US Indictment: Banks' risk management units begin stock-taking

May escalate matter for board-level discussion

Risk-management units of lending institutions have begun to assess implications of the bribery charges against Adani group Chairman Gautam Adani and other senior officials brought by authorities in the United States.

 

This issue may be flagged as an agenda item for their boards, especially their risk-management sub-committees, since the indictment is a matter with a bearing on lender-borrower relations.

 

Senior executives of banks said they were keeping a close eye on unfolding events. Prima facie there is no cause for worry. The present exposures, loans and debt, are to projects that have clear cash flows and are backed by assets.

   

Risk-management departments of lenders will hold discussions on the matter. It was too early to say when lenders would start talks with the group.  

 

Referring to lenders’ credit, brokerage IIFL Securities said the group’s gross debt was Rs 2.4 trillion ($29 billion) and net debt stood at Rs 1.8 trillion ($22 billion) as of FY24.

 

Loans taken by Adani group’s green energy, transmission and power generation units are backed by strong assets and shouldn’t raise any major concern for the state-run lenders, according to Bernstein.

 

Indian lenders hold 36 per cent of the gross debt. Of this, financial institutions and non-banking financial companies have 18 per cent, followed by public-sector banks at 15 per cent and private banks at 4 per cent. 

 

Global banking entities have a 26 per cent share, global capital markets 29 per cent, Indian capital markets 5 per cent and others 4 per cent, according to IIFL Securities.

 

As a commercial transaction between banks and borrowers the focus is on the track record — if repayments are on time and there is no default. However, as a prudent step, risks are reckoned on while making assessments for any exposures for the future, bankers pointed out.

 

A top executive of a state-owned financial institution said the exposure of most Indian lenders was close to the limits set for group exposures in line with the Reserve Bank of India’s norms. 

 

As a consequence, there is little room for taking a significant fresh exposure.  

 

Two executives with Mumbai-based banks said the development was too big to be considered as just a matter for internal assessment. It could be put up as an agenda for deliberations at the board of directors meeting.

 

With growing emphasis on environment, social and governance (ESG), risk management committees of boards have become particular about such issues, they added.

 

CreditSights, a unit of the Fitch group, in a note said the major concern was regarding near-term debt refinancing risk.

 

This was because this could hamper fundraising and debt refinancing efforts.

 

“Within the Adani complex, we are most concerned about Adani Green Energy Ltd (AGEL) given it has the weakest liquidity and credit fundamentals, and given the US indictment is centered on AGEL”, CreditSights said.

 

Funding channels for the group will squeeze, with creditors likely to reduce or limit their exposures. Funding access could be tighter across international banks and investors, it added.