RBI's Rare Clarification: Banking Sector Is Healthy

The Reserve Bank of India has issued a rare clarification after media reports over concerns about banking sector health owing to exposure to a business conglomerate.

The banking system "remains resilient and stable" according to the regulator's current assessment, the RBI said in a statement on its website. 

"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 guidelines issued by the RBI," the regulator said.

After governance allegations raised by international short-seller Hindenburg Research against it, the Adani Group companies have seen a sharp fall in stock prices over the last few weeks. This led to concerns over the financial health of these companies. 

The concerns forced domestic lenders to Adani Group, such as State Bank of India, Bank of Baroda, Life Insurance Corp., IndusInd Bank Ltd. and IDFC First Bank Ltd. to clarify on the quality of their exposure.

On Friday, SBI Chairman Dinesh Khara said the lender had Rs 27,000 crore worth of exposure to the group companies, which represents 0.88% of outstanding loans. The lending is against cash generating assets and SBI does not envisage any problems with the group's ability to repay debt, Khara said. 

Sanjiv Chadha, Bank of Baroda's managing director and chief executive officer, said the bank's total exposure to Adani Group companies was a fourth of the LEF ceiling. He said the bank was "completely assured" of credit quality of Adani Group companies.

LEF sets the maximum exposure limit at 25% of a bank's tier-1 capital. Considering Bank of Baroda's capital position, its exposure would range between Rs 5,000-5,500 crore. 

"As the regulator and supervisor, the RBI maintains a constant vigil on the banking sector and on individual banks with a view to maintain financial stability," the RBI said. "The RBI remains vigilant and continues to monitor the stability of the Indian banking sector."

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