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Moody's Says Bank Exposure To Adani Group Under 1%, Will Monitor If It Rises

Indian banks are insulated from risks arising out of Adani Group events, says Moody's.

<div class="paragraphs"><p>The Adani Group logo is seen on the facade of one of its buildings in Ahmedabad. (Photo: Amit Dave/Reuters)</p></div>
The Adani Group logo is seen on the facade of one of its buildings in Ahmedabad. (Photo: Amit Dave/Reuters)

Moody's Investor Service on Tuesday said that domestic bank exposure to Adani Group companies continues to remain under 1% of their total loans, indicating a lower risk profile. While public sector banks have extended more money than their private peers, each of their exposures continues to remain lower.

"We estimate that the bulk of the exposures are collateralized, either with operational assets or with projects under execution, rather than to the corporate level. While some of the exposures may be to the less mature assets of the group, the concentration on operating entities nevertheless reduces risks," Moody's said.

However, if Adani Group's ability to access funding from international markets is curtailed due to heightened risk perception, domestic banks may have to step in, the rating agency said.

"In that case, domestic banks may become the main source of funding for the group, resulting in increases in banks' exposures to Adani and greater risks for them," Moody's said.

The rating agency will monitor the extent of increases in the exposures to gauge the risks from Adani. It will also see if increases in the exposures will be spread across banks, or concentrated among any particular group of lenders.

Having said that, domestic banks continue to enjoy strong asset quality on their corporate loan books. Two factors, such as increased corporate deleveraging in the last few years and conservative underwriting by banks, will play a key role, the agency said.

"As a result, corporate loans have been the best-performing segment in banks' loan books over the past two years," Moody's said.

Additionally, the Insolvency & Bankruptcy Code and the Reserve Bank of India's enhanced scrutiny of large loans through the central registry for information on large credits, have helped improve corporate loan quality.

Moody's does not expect that events at Adani Group will lead to any spillover into the broader Indian corporate space. However, there has been a gradual tightening of the external funding environment for domestic corporates. This has encouraged these companies to go back to banks for funding requirements.

"If this further accelerates, funding costs for banks may rise as they seek more funding to meet increases in loan demand from corporates. However, as corporates flock to banks for funding, banks would have stronger pricing power for loans, which would allow them to defend their margins," Moody's said.

Earlier on Tuesday Fitch Ratings too said that it does not expect Adani Group exposures to pose a material risk toward domestic banks.