New Delhi: The government has finally broken its silence on the Adani crisis, with the finance minister, the Reserve Bank of India (RBI) and the finance secretary saying that the exposure of Indian banks and the Life Insurance Corporation (LIC) was “within limits”.
Finance minister Nirmala Sitharaman said in an interview with Network 18 on Friday, February 3, said that both SBI and LIC had explained that they are not overexposed to Adani. These institutions have said that they are “sitting over profits for the exposure that we have, which is well within the limit”, Sitharaman said. Even after the valuation of Adani stocks falling, these institutions have said that they are “sitting over profit,” Sitharaman said.
The Adani group is in the midst of a crisis after the US short-selling firm Hindenburg Research accused it of “brazen stock manipulation” and “accounting fraud”. While Adani has rejected the allegations, shares in its seven listen companies have tanked since the report was published and the group has lost almost half its evaluation.
The finance minister said that the Budget was received well by the market but trailed back “for whatever reason”. She expressed confidence that in the next few days, “the Budget’s impact will still continue to hold the markets high”.
In the interview, Sitharaman said that the Indian banking sector’s position is “comfortable” right now. She said, “…having gone through the twin balance sheet problem, Indian banking sector today is at a comfortable level. With their NPAs coming down to absolutely low levels, recoveries happening, and their position is very sound which gets reflected in the fact that when they go to raise monies in the market, they are absolutely comfortable raising monies as well.”
Indian banking sector ‘resilient and stable’: RBI
Meanwhile, the RBI also said on Friday that the Indian banking sector remains “resilient and stable”. The central bank issued the statement “in the backdrop of media reports expressing concern about the exposures of Indian banks to a business conglomerate”. While it did not name Adani Group, it said that banks are “in compliance with the Large Exposure Framework (LEF) guidelines” issued by it.
“Various parameters relating to capital adequacy, asset quality, liquidity, provision coverage and profitability are healthy,” it said in a statement on the health of the Indian banking sector.
“The RBI remains vigilant and continues to monitor the stability of the Indian banking sector,” it said.
“As the regulator and supervisor, the RBI maintains a constant vigil… on individual banks with a view to maintain financial stability,” it said. “The RBI has a Central Repository of Information on Large Credits (CRILC) database system where the banks report their exposure of Rs 5 crore and above which is used for monitoring purposes,” it added.
Storm in tea cup, says finance secretary
Finance secretary T.V. Somanathan on Friday said that from a macroeconomic point of view, the Adani crisis was a “storm in a tea cup” because India’s public financial system is robust. In an interview with the news agency PTI, the top bureaucrat in the finance ministry was asked about the exposure of banks and insurance companies to the Adani Group. He responded that from “the point of view of financial stability, either for depositors, or for policyholders, or for anyone holding shares in these institutions”, there is absolutely no concern.
“The share of any one company is not such as to create any impact at the macro level and so there is absolutely no concern,” he said.
He said that the turmoil in the stock market is not the government’s concern. ” It’s a storm in a tea cup as far as macroeconomics are concerned, not in respect of markets.”
Somanathan said, “The government’s concern is with creating the right investment environment, creating a well regulated set of financial market… making sure there is transparency and that the market functions well; making sure the information asymmetry is reduced; and making sure the government’s own macroeconomic policies are sound.”