Indian banking won't be affected by individual case: Shaktikanta Das

Loans are not given considering a company's market capitalisation, he says about Adani Group crisis

Indian banking is resilient and will not be "affected by an individual case", said Reserve Bank of India (RBI) governor Shaktikanta Das on Wednesday, referring to lenders' exposure to the Adani Group.

Indian banks do not lend money on the basis of a company’s market capitalisation, he said amidst questions about their exposure to Adani Group companies that saw their stocks crash last week. The appraisal to lend money is done on parameters such as underlying assets of the company, its operating cash flows, and projects under implementation, among others.

“We have made our own assessments. The large exposure framework of RBI is fully complied with by all the banks. The strength, size, and resilience of the Indian banking system is much larger and stronger to be affected by an individual case like this,” Das said at the post monetary policy press conference in Mumbai.

“They (banks) lend on the basis of the strength of the company, its fundamentals, their analysis of the projects, the anticipated cash flows, and many other appraisal methods. The appraisal processes of banks have significantly improved over the years. So, I would reiterate that the banking system is stable and continues to be strong”, he said.

Supplementing the governor’s comments, M K Jain, Deputy Governor, RBI said, “Our domestic banks’ exposures are against the underlying assets, the operating cash flows, and the projects under implementation. And, not based on the market capitalisation. The exposure as of now is not very significant across all the banks and NBFCs. The exposure against the shares of the domestic banks is insignificant”.

Das said the central bank in the past few years has taken numerous steps to improve the resilience and governance of banks. “We have come out with regular guidelines to regulate the governance in Indian banks. We have issued guidelines on functioning of audit committees and risk management committees. We have now made it mandatory for banks to appoint chief risk officers and chief compliance officers. And, through our regulations, we have given the desired level of autonomy to these officers with regard to their functioning in the bank. We have also rationalised in the last two years the large exposure framework norms”.

“The Indian banking sector and the NBFC sector continue to be resilient and strong”, Das added.

A RBI statement last week said the banking sector remained resilient in its assessment, and lenders' exposures to companies were well within norms. This statement came amid concern over lenders’ financial health due to the stock rout in the Adani group.

As per reports, the banking sector had an exposure of around Rs 80,000 crore to the Adani Group companies, with the country's largest lender—State Bank of India—leading the pack with Rs 27,000 crore.

“As per the RBI’s current assessment, the banking sector remains resilient and stable. Various parameters relating to capital adequacy, asset quality, liquidity, provision coverage and profitability are healthy. Banks are also in compliance with the Large Exposure Framework (LEF) guidelines issued by the RBI,” the RBI statement said.

Separately, large banks have come out with statements saying they are comfortable with their exposures to the group and they do not see any concerns relating to repayments so far.

The loans are backed by tangible assets and cash flow, and the bank has not extended any loans against shares, Dinesh Kumar Khara said in a media interaction while announcing the October-December earnings. “We do not envisage any kind of challenge in terms of their ability to service their loan obligations. As for market prices of stocks it would neither impact margin calls, nor affect loans they have taken from SBI,” Khara had said, adding the group had an “excellent track record” for repayment in the past.

The Adani 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. The group has denied the allegations.