Framework In Place To Handle Public Sector Bank Exposure To Adani Group: Sitharaman

The RBI's large exposure framework has been put in place to mitigate risks for public sector banks, said Finance Minister Nirmala Sitharaman.

"As per (Reserve Bank Of India) RBI guidelines, banks are required to have a clear policy regarding the debt-equity ratio for project financing to ensure that promoters bring in equity funds proportionate to bank finance," Sitharaman said in Parliament, while responding to the exposure of Indian public sector banks to the Adani Group.

To address the concentration risk coming from large exposure to the banking system, RBI has stipulated banks to maintain additional provisions and risk weights on incremental exposure towards specified borrowers having overall aggregate sanction credit limit of Rs 10,000 crore, she said.

The topic, which has evoked strong debates in both the houses, was also the reason for over three days of parliamentary logjam and early adjournment in the first half of the budget session of Parliament earlier this year.

Answering the query of Congress MP Depak Baij, Sitharaman's statement at the Lok Sabha house detailed the disclosures so far.

While the RBI is prohibited from disclosing credit information under Section 45E, the public insurer LIC and five public sector general insurance companies have already informed the status of their exposure to Adani Group companies.

"The Life Insurance Corp. of India has informed that its debt exposure to Adani Group of Companies, was Rs 6,347.32 crore and Rs 6,182.64 crore, as on 31.12.2022 and 5.3.2023, respectively," the statement said.

"The five Public Sector General Insurance companies have informed that these companies do not have loan/credit exposure to Adani Group of Companies," it said.

The New India Assurance Co., United India Insurance Co., National Insurance Co., Oriental Insurance Co. and General Insurance Corp. of India, had revealed their total exposure in Adani Group of companies as on Jan. 31, 2023. They quoted Rs 347.64 crore as the figure, which is 0.14% of the total AUM of all the five companies.

According to Sitharaman, public sector bank loans are sanctioned after assessing the viability of projects, prospective cash flows, risk factors and availability of adequate security. Repayment of loans are ensured by the revenue generated by the project, and not by the market capitalisation of the company, she said.

She elaborated on the large exposure framework implemented by the RBI. " ...(The framework) limits the exposures that a bank can take to a single counterparty and a group of connected counterparties to 20% (extendable to 25% by the board of the bank under exceptional circumstances) and 25%, respectively, of the eligible capital base of the bank," the statement said.

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