Indian Banks Face Limited Risk From Adani Group Row: Fitch

The exposure of Indian banks to the Adani Group is insufficient to present a substantial risk to the credit profiles of these lenders, according to Fitch Ratings.

"Even under a hypothetical scenario where the wider Adani group enters distress, exposure for Indian banks should, in itself, be manageable without adverse consequences on the banks' viability ratings," Fitch noted in a Feb. 7 report.

But the banks' "Issuer Default Ratings" are also driven by expectations that the banks would receive extraordinary sovereign support, if needed, the report added. Fitch believes that 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, the report said.

The State Bank of India, ICICI Bank Ltd., Axis Bank Ltd., Union Bank of India, Punjab National Bank, Bank of India, Bank of Baroda, and Canara Bank are among the Indian lenders rated by Fitch Ratings.

"There is a risk that state banks (public sector 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," the report noted.

The non-fund-based exposure—via bonds or equity—of Indian banks to the Adani Group is expected to be small compared with loan exposures, according to Fitch. The effects of this could be amplified further if the controversy raises financing challenges for other Indian corporates, increasing their reliance on local bank borrowings, the report said.

"The country's medium-term economic growth could also be hurt if the group's troubles have substantial negative spillovers to the broader corporate sector or significantly raise the cost of capital for Indian firms, dampening investment," the report noted.

Overall, Fitch said it believes the economic and sovereign implications of the Adani controversy remain limited.

Disclaimer: Adani Enterprises is in the process of acquiring a 49% stake in Quintillion Business Media Ltd., the owner of BQ Prime.