Adani Group exposures not large to pose risks to banks: Fitch, Moody's

Indian banks' exposure to Adani Group companies is not that large to significantly risk their credit profile, said global rating agencies Fitch and Moody's on Tuesday.

A statement by Moody’s though warned that risks for banks can increase if the Adani Group becomes more reliant on loans.

Banks' exposure to the group is less than one per cent of their total loans, said Moody’s, which has issued frequently asked questions about risks.

Fitch said: "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.

"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,” said Fitch.

The group, led by billionaire Gautam Adani, has been battling days of market turmoil after US short-seller Hindenburg Research on January 24 alleged it had engaged in stock manipulation and used tax havens. It also said the group had unsustainable debt.

In the last two weeks, equity and bond prices of Adani Group companies have dropped significantly. Adani has denied Hindenburg’s allegations, as sell-offs in the group's stocks prompted flagship unit, Adani Enterprises Limited, to cancel a $2.5 billion share sale.

According to Moody's, the group's access to funding from international markets can be curtailed because of heightened risk perception. In that case, domestic banks may become the main source of funding for the group.

Commenting on risks, Fitch said loans involving projects under construction and those at the company level could have greater vulnerability. However, even if exposures were entirely provisioned for it would not impact Indian banks’ viability ratings as lenders have enough headroom at their current rating levels, the rating agency said.

The Reserve Bank of India last week took cognizance of concerns and issued a statement saying the banking sector remains resilient and stable. Various parameters relating to capital adequacy, liquidity, provision coverage and profitability are healthy, said the regulator.