Indian Banks Face Limited Risk From Adani Group Controversy, Fitch Says

Fitch Ratings said Indian banks’ exposure to Adani Group is insufficient in itself to present substantial risk to the banks’ standalone credit profiles.

Indian banks’ issuer default ratings all remain driven by expectations that the banks would receive extraordinary sovereign support, if needed, Fitch said in a statement.

The rating agency said on 3 February that the controversy over US short-seller Hindenburg Research’s report has no immediate impact on the ratings of Fitch-rated Adani entities and their securities.

Fitch said State Bank of India on 3 February indicated that state-owned banks’ share of the group’s loans had fallen to 31% by end-2022, from 55% in 2016. “We believe loans to all Adani Group entities generally account for 0.8%-1.2% of total lending for Fitch-rated Indian banks, equivalent to 7%-13% of total equity,” it added.

Even in a distress scenario, it is unlikely that all of this exposure would be written down, as much of it is tied to performing projects, the rating agency said, adding that loans involving projects still under construction and those at the company level could be more vulnerable.

“However, even if exposures were fully provisioned for, we do not expect it would affect banks’ viability ratings, as banks have sufficient headroom at their current rating levels,” Fitch said.

The rating agency noted that banks could have some unreported non-funded asset exposure, such as commitments or through holdings of Adani Group bonds or equity, particularly as collateral. However, any such holdings are likely to be small compared with loan exposures, and they would not be material for Fitch-rated Indian banks, it said.

That said, there’s a risk that state banks could face pressure to provide refinancing for Adani entities if foreign banks scale back their exposure or investor appetite for the group’s debt weakens in global markets, Fitch noted.

The rating agency said it currently believes the economic and sovereign implications of the Adani controversy remain limited.