Indian Banks' Credit Risk From Adani Exposure Appears Contained: JPMorgan

JPMorgan analysts noted that as of March, Indian banks' exposure to the Adani Group accounted for approximately 0.3 per cent of their outstanding loans, backed by asset collateral

In response, Adani Group has denied the allegations, calling them "baseless," and vowed to pursue "all possible legal recourse"

Source : Adani Group

JPMorgan stated on Friday that Indian banks' loan exposure to the struggling Adani Group appears "manageable" and that any potential credit risk following the indictment of its billionaire founder, Gautam Adani, in the United States, seems "contained."

US prosecutors have charged Adani, along with seven others, for allegedly paying $265 million in bribes to Indian government officials to secure contracts, including the development of the country’s largest solar power plant.

In response, Adani Group has denied the allegations, calling them "baseless," and vowed to pursue "all possible legal recourse."

Shares of Indian state-owned banks dropped 2.7 per cent on Thursday amid concerns over the level of their exposure to the Adani Group, a vast conglomerate spanning around 10 listed companies.

However, JPMorgan analysts noted that as of March, Indian banks' exposure to the Adani Group accounted for approximately 0.3 per cent of their outstanding loans, backed by asset collateral.

"We don't see major credit risk as the underlying companies are not implicated," JPMorgan said in a note. Furthermore, the bank highlighted that Indian banks' exposure to Adani Green, the company at the heart of the allegations, is "materially lower," accounting for just six basis points of the banking system's total credit as of September.

The investment bank also stated, "We do not see any systemic risk to Indian financials from a potential credit event in Adani Green, given the low exposure, asset cover, improving operating performance of the broader Adani Group and the capital and standard asset buffers at banks.”

While banks' credit risk may be manageable, sources told Reuters that both global and local banks are likely to limit new funding. Four local bankers interviewed by Reuters indicated they would adopt a cautious, "wait-and-watch" approach, with any new funding likely coming at higher interest rates due to the heightened risks.

"Loan pricing is expected to go up, but we will wait and watch for at least 3-4 months before we initiate any fresh funding request," said an official at a private lender with exposure to the Adani Group.

An official told the agency that their internal assessment indicates the Adani Group has the capacity to repay its loans, with solid cash flows. 

Meanwhile, shares of Indian state-owned banks saw a rebound on Friday.