LIC & SBI savings at risk amid Hindenburg Report on Adani”s stock crash
- ByStartupStory | January 28, 2023
As the shares of Indian billionaire Gautam Adani plummeted on Friday following a report by a US investment firm claiming the group had committed “brazen” corporate fraud, concerns were raised about the implications for financial stability and the savings of crores of Indians in financial institutions such as Life Insurance Corporation (LIC) and State Bank of India (SBI).
The Congress party called for an investigation into the allegations made by Hindenburg Research and said it may have exposed India’s financial system to systemic risks “through the liberal investments in the Adani Group made by strategic state entities like LIC, SBI and other public sector banks”.
According to Jairam Ramesh, Congress general secretary in charge of communications, the Hindenburg report requires a response from the Congress party because the Adani Group is “no ordinary conglomerate” and has been “closely identified with Prime Minister Narendra Modi since the time he was Chief Minister of Gujarat.”
“Furthermore the high exposure of financial institutions such as the Life Insurance Company of India (LIC) and the State Bank of India (SBI) to the Adani Group has implications for financial stability and for the crores of Indians whose savings are stewarded by these pillars of the financial system (sic),” Ramesh said.
“These institutions have liberally financed the Adani Group even as their private sector counterparts have chosen to avoid investing because of concerns over corporate governance and indebtedness. As much as 8 percent of LIC’s equity assets under management, amounting to a gigantic sum of Rs.74,000 crore, is in Adani companies and comprise its second-largest holding,” the statement added.
CPI(M) leader Sitaram Yechury said if the allegations are proven correct it will “destroy lives of crores of Indians who park lifelong savings in LIC & SBI.”
As shares of group companies and lenders with exposure to them fell sharply on Friday, some of India’s leading public sector banks said their exposure to the Adani Group was within the Reserve Bank of India’s limits. The RBI allows a bank to expose no more than 25% of its available eligible capital base to any one group of connected companies.
According to Reuters, Khara stated that the Adani Group had not recently received funding from SBI and that the bank would make a “prudent call” on any funding request from them in the near future.
SBI has requested clarification from the company, and the board will make any decision regarding the bank’s exposure to the group.
An official at the state-run Bank of India said the loans to the Adani group were within permissible limits.
“Our exposure to the Adani Group is below the large exposure framework of the Reserve Bank of India,” Reuters quoted an unnamed executive at the Bank of India as saying.
“Till last month, the Adani Group’s interest payment on loans has been intact.”
According to the report, bank executives at two other private lenders said they were not yet in “panic mode,” but were keeping a close eye on things.
Meanwhile, LIC is unfazed by the fraud allegations and continues to invest in Adani’s flagship unit. According to a filing, the state-controlled life insurer will spend about $37 million as an anchor investor in Adani Enterprises Ltd.’s $2.5 billion new share sale. The investment would increase its current stake of 4.23%.
“If Adani is serious, it should also file suit in the US,” the firm said in a statement. “We have a long list of documents we would demand in a legal discovery process.”
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