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Indian banks are fully compliant with the regulatory framework on large exposure norms and, thus, their exposure to Adani Group companies is not a concern, said Governor Shaktikanta Das on Wednesday.
“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 like this,” said Das.
“This whole perception is coming because of the market capitalisation of the shares of the Group,” he said, adding that banks do not lend to company Group on the basis of their market capitalisation, but on the strength and fundamentals of the company, anticipated cash flows, and their own analysis of the projects they have invested in, among other factors.
“Many other things go into the appraisal of the banks, and the appraisal methods of Indian banks have significantly improved over the years,” said Das, reiterating that the banking system, including the NBFC sector, is stable and continues to be strong.
This includes measures taken by the central bank over the last 3-4 years to regulate the governance in Indian banks, such as guidelines on functioning of audit and risk management committees, mandating appointment of chief risk and compliance officers, and the large exposure norms.
“Our domestic banks’ exposure is against the underlying assets, the operating cash flows, and the projects under implementation, and not based on the market cap. The exposure as of now is not very significant across all the banks and the NBFCs as well, and the exposure against shares is insignificant,” said Deputy Governor MK Jain.
Asked if banks should increase provisioning towards their Adani Group exposure, Das said that most banks shored up their capital levels during the pandemic and are well capitalised and prudent.
“The bank managements will take their own decisions wherever they feel there is a need for additional provision to be made,” he said, adding it’s a part of the regular risk management of banks and, thus, should be looked at ‘objectively’.”
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