According to a note released by CreditSights, a subsidiary of Fitch Ratings, the exposure of the State Bank of India to the troubled Adani Group is considered to be under control. This is due to the bank’s strong reserves set aside for provisions, which serve as a cushion in the event of potential losses. The report emphasized that the bank is equipped to manage this situation effectively.
The Chairman of the State Bank of India, Dinesh Kumar Khara, stated on Friday that the bank’s overall exposure to the Adani Group amounts to 0.9% of its entire loan portfolio, which translates to approximately 270 billion Indian Rupees.
CreditSights emphasized that the State Bank of India, which is the largest lender in the country, has a buffer of provision reserves worth 338 billion Indian Rupees, which is equivalent to approximately $4.08 billion and represents around 1% of the bank’s net loans.
Additionally, CreditSights pointed out that the State Bank of India has the capability to produce pre-provisioning operating profit, which is a measure of the bank’s income before considering any provisions for future potential bad debts.
Furthermore, CreditSights mentioned that a significant portion of the bank’s exposure to the Adani Group was secured by assets that have already been completed and are producing cash flow. The remaining exposure was to projects that are currently under construction but are progressing according to schedule.
According to SBI’s CEO, the Adani Group’s financial position does not pose a threat to the bank and there are no concerns regarding their ability to fulfill their debt obligations.
In recent times, there has been concern among investors regarding the involvement of various banks with a specific group, this started since the end of January when Hindenburg Research, a short-seller based in the United States, accused the conglomerate of improperly using offshore tax havens and manipulating stock. Despite these allegations, the group has strongly denied these accusations and has provided thorough explanations to refute the criticism and assert their innocence of any wrongdoing.
The Reserve Bank of India, as the governing body responsible for overseeing the country’s banking sector, has issued a statement aimed at addressing any concerns and assuring the public that the Indian banking system remains strong and secure. According to CreditSights, the State Bank of India has some non-funded exposure, however, this exposure is in the form of letters of credit and bank guarantees and does not involve any equity raising or acquisition activities.
Last week, the State Bank of India announced a significant increase in its net profit for the October to December quarter, with a 68.5% increase compared to the previous period. This was due to an improvement in interest income and a reduction in the provisions made for bad loans. CreditSights, a financial analysis firm, continues to have a “market perform” recommendation for SBI.