The strength, the size and the resilience of the Indian banking system is now much larger and much stronger to be affected by an individual incident or a case, Reserve Bank of India Governor Shaktikanta Das said today.
“The RBI has made its own assessments. The large exposure guidelines prescribed by the RBI are fully complied with by all the banks,” Das said during a post-policy conference on being asked if RBI will give guidance to domestic banks about their exposure to Adani Group.
“The whole perception is coming because the market capitalisation of the shares of the group. When banks lend money to a company or a to group of companies, the banks do not lend on the basis of market capitalisation of that particular company,” Das added.
The comments come as seven listed Adani group companies have lost more than half their market capitalisation, which shrivelled to less than $100 billion, after a report by US short-seller Hindenburg Research questioned conglomerate’s debt levels and use of tax havens.
Adani, whose fortunes had risen rapidly in recent years, also unexpectedly announced the withdrawal of its Rs 20,000-crore follow-on public offer (FPO), which had been successfully completed the day before. Investor mood was further jolted after the share sale was called off.
The Adani Group has rubbished the allegation of stock manipulation, saying it had “no basis” and stemmed from ignorance of Indian law. The company said over the past decade, group companies have “consistently de-levered”.
The stock meltdown also marks a dramatic turn of fortune for Adani, who in recent years have forged partnerships with, and attracted investment from, foreign giants.
Adani also lost his position as Asia’s richest person, sliding to 17th position in Forbes’ rankings of the world’s wealthiest people. Earlier, Adani was third behind Elon Musk and Bernard Arnault.
“There have been media reports expressing concern about the exposures of Indian banks to a business conglomerate. 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 central bank had said in an statement.
The RBI governor today said banks lend based on the strength of the company, the fundamentals of the company or the strength and fundamentals of analysis, the anticipated cash flows and so may other things that go into the banks’ appraisals. The appraisal mechanism of banks have significantly improved over the years.
While the central bank periodically monitors all big borrowers and banks’ ability to withstand shocks, the latest check follows the market turmoil.
“The central bank has asked all lenders to submit exposure data related to the Adani Group,” a senior banker in the know said. “Due to the turmoil in the stocks, the RBI wants to assess if this could lead to a potential problem for the banking system. They are also assessing whether any bank is in breach of the group exposure norms.”