India Banks sound, Not lending on Market Cap

February 09, 2023

Indian banks and non banking finance companies (NBFCs) with exposure to the Adani Group are sound and are in compliance with the regulations regarding exposure limits, Reserve Bank of India (RBI) governor Shaktikanta Das said. The perception created by the collapse in equity valuations of the group companies is not a reflection on the banks which lend against assets and cash flows, Das said.

“The strength, size and the resilience (of banks) is now much larger and much stronger to be affected by individual incident or case like this. Also, this whole perception is coming because of the market capitalisation or shares of the group. When banks lend money to a company or a group of companies, they do not lend on the basis of the market capitalisation of that company but on the basis of the strength and fundamentals of the company or in case of a greenfield project the anticipated cash flows,” Das said in reply to a question on the exposure of banks to the Adani Group.

Das said that banks have their own appraisals for loans to companies and appraisal methods of Indian banks have significantly improved over the years. He also said that the RBI has made its our own assessment on the financial sector exposure to the group and banks are in compliance with the large exposure framework of the RBI.

Questions on banking exposure to the Adani Group have surfaced after a sharp fall in the companies’ shares earlier this month after US based Hindenburg Research accused the group of mis-governance. The group’s securities have since recouped some of their losses.