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Rating agencies don’t see risk for banks in Adani loans

Feb 8, 2023

By: BlinkX Research Team

Two of the world’s leading rating agencies viz. Moody’s and Fitch, have underplayed the banking risk in the Adani saga. They expressed confidence that the exposure of Indian Banks to Adani Group was not significant enough to impact their credit profile.

Moody’s has given a subtle warning that the risks for banks could increase if Adani Group becomes more dependent on loans.

For the banking system overall, the total exposure to Adani group is less than 1% of their total loan book; which is manageable.

With total equity exposure of 7% to 13% of bank equity, Fitch believes that even in a distress case scenario, it is unlikely that too many loans would be written down. Most of the loans are towards performing projects. The Adani group has been facing the brunt of short sellers since January 24, 2023, since Hindenburg first published their bearish report on Adani group. 

The report was not so much about business findings but about alleged stock manipulation using tax havens and unsustainable debt levels.

Adani group, in a detailed response, had denied all allegations but the sell-off in Adani group stocks has continued unabated. The selling was so intense that Adani Enterprises had to cancel its $2.5 billion FPO and its Rs1,000 crore bond issue. 

Moody’s has warned that the downside risk could be that Adani group’s access to funding from global markets could be curtailed. Domestic banks are allowing Adani to use sanctioned lines of credit, but not giving fresh lines.

Fitch has underlined that loans tagged to projects under construction or execution could have greater vulnerability. 

However, the good news is that even if exposures were entirely provisioned (in a worst-case scenario), the impact on viability of Indian banks would be limited. General risk parameters like capital adequacy and GNPA ratio are robust for Indian banks.