Debts owed by Adani Group exceeds 1% of Indian economy

An analysis by Nikkei Asia has revealed that the total debts owed by Adani Group add up to Rs 3.39 trillion ($41.1 billion) and are "equivalent to at least 1% of the Indian economy".

The liabilities attributed to 10 of Adani's listed group companies which the conglomerate purchased last year that include ACC, Ambuja Cements and New Delhi Television add up to 3.39 trillion rupees, according to calculations by Nikkei.

"India's nominal gross domestic product at the end of October stood at Rs273 trillion, the International Monetary Fund reported. That puts Adani's debts as a percentage of the economy at around 1.2%," it said.

As per the Nikkei reports, the 10 Adani group companies had a collective equity ratio of 25%. One of them, Adani Green Energy, had an equity ratio of just 2% as of March 2022, reports Economic Times. 

"Altogether, the 10 group companies hold more than Rs4.8 trillion in total assets, but investors are growing concerned about the outsized debts. The Adani group includes a multitude of privately-held companies, meaning its total debt load could be higher," it added.

Adani's troubles started on 24 January when US short-seller Hindenburg Research issued a scathing report alleging accounting fraud and stock manipulation by the conglomerate over several years. Hindenburg claimed that many of Adani's group companies are on "precarious financial footing" with an insufficient amount of liquid assets. The report by Hindenburg Research cost the Adani Group $100 billion in the past few weeks.

The Reserve Bank of India stated that the banking sector remained resilient and stable during the Adani row. Indian banks have a debt exposure of close to Rs80,000 crore to the Adani Group, amounting to about 40% of the conglomerate's total debt of nearly Rs2 lakh crore, according to a recent CLSA report.

"As per the RBI's current assessment, the banking sector remains resilient and stable. Various parameters relating to capital adequacy, asset quality, liquidity, provision coverage and profitability are healthy. Banks are also in compliance with the Large Exposure Framework (LEF) guidelines issued by the RBI," it said.

"State-run banks, led by State Bank of India, have lent about three-fourths of the Indian banking system's exposure to the conglomerate at 30% of the total. The share of Indian private sector lenders is one-fourth at 10% of the total. Foreign banks have funded large acquisitions made by the group," reports Economic Times. 

During a press conference on Wednesday, following the RBI's monetary policy announcement, Shaktikanta Das downplayed the impact, saying "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."

"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.