Random Reflections
In spite of the Hindenburg report and the SEBI enquiry under progress, the SBI-led consortium has agreed to give another Rs 34000 crore to the Adani Group as per the news reports.
Adani Group has 9 listed companies, namely ACC Ltd, Adani Enterprises Ltd, Adani Green Energy Ltd, Adani Ports & Special Economic Zone Ltd, Adani Power Ltd, Ambuja Cements Ltd, Adani Total Gas Ltd, Adani Wilmar Ltd and New Delhi Television Ltd. In addition, there are 224 subsidiaries. Out of them, 83 are called subsidiaries, 129 step-down subsidiaries, 32 are jointly controlled entities and 2 associates which are not listed. We can get details of the listed companies in the public domain, but we can’t get details of subsidiaries. As of 31 March 2023, the outstanding loans of the listed companies are Rs. 2.27 billion or Rs.2.27 lakh crore.
When a bank assesses a loan proposed, it not only takes the balance sheet into account but also the various risks involved. Here in the case of Adani, there are too many risks. Banks compile an ‘Opinion Report’ of every borrower/company as well as its directors. This opinion report covers their reputation, market opinion on them, their past history, opinion of similar businessmen etc. Newspapers have reported that this year the interest rate for the Adani Group of companies has gone up from 6-6.5% to 8.75-9.15% because of reputation premium and risk premium. What if the loans go bad? Not only the interest but also the principal will be lost like in the case of ABG Shipyard and other big loans.
There have already been various reports about the group, and the banks should have been careful. If this loan goes bad, immediately the banks, especially the SBI will run into a loss due to provisions and write-offs. This has already happened with the SBI recently in the year 2019 when it declared a loss of Rs.6968 Crores.
Now, the withdrawal of Deloitte as auditor of Adani’s companies comes as a shock. Organized Crime and Corruption Reporting Project (OCCRP) funded by Billionaire George Soros has pointed out some serious allegations in investments by two individuals closely associated with Vinod Adani.
The Wire has published 3 articles on how Adani firms have manipulated and gained in different projects within the country.
The Guardian and Financial Times have reported alarming stories.
The farmers as well as the opposition parties have raised serious issues, including those of huge scams.
Hence, the Board of SBI and the consortium of lenders have to have a serious review. Unfortunately, on the board, there is no officer Director or Employee Director mandated by the law. The failure of the company will have ripple effects on the banking system.
An analysis of the Adani Group balance sheets shows a huge increase in income last year. For Example, Adani Enterprises has shown an income increase of 96% and profit growth of 218%. But the June 2023, results show a 37.72 % decrease in its net sales.
As of September 2022, the Gross Asset Block of 8 listed entities was Rs.371255 cr whereas the Gross Debt was Rs. 226030 cr, which is huge. The companies have interlending with the subsidiaries, the details of which are very difficult to assess.
There are worth Rs.1536.54 crore tax disputes pending. Tax authorities have the first right over the assets in case of loan default.
The annual reports of Adani claim that Lucknow, Guwahati, Trivandrum, Mangalore, Jaipur, and Ahmedabad airports as 100% owned by it. It can’t be true. Has Modiji sold all these assets for a song? In the case of Trivandrum Airport, the state Govt had offered a higher rate in the tender, but Adani with a lesser rate got the tender.
These are serious issues which a bank should look into on a daily basis. The RBI had earlier stated that one corporate group should not be given more than, Rs10000 cr loan. Though RBI is keeping its eyes closed, the banks should take serious note and not lend Rs.2.27 lakh crore to one company, even if it is the blue-eyed boy of the Prime Minister. The risk is simply too high! With the change of Govt anticipated in 2024, the Adani empire might fall like a pack of cards. All 25 banks that have lent to it will run into huge losses and the banking system itself will collapse.
Surprisingly, The Times of India has reported that the SBI Chairman is likely to get a 10-month extension of service. He is already 62 years old. It will affect the career of his successor in waiting. The retirement age at the banks is 60 years.
Sometime back when I had a discussion with a few finance journalists, some of them said that Mr. Adani met Mr. Dinesh Khara, Chairman, SBI and offered that he will get one-year extension or move him to RBI when the present Governor retires provided he is given the additional loan that he wants.
I told them that it was not possible. But the announcement of a new loan of, Rs34000 crores was a real surprise when the Adani Group was not doing well. It may not be true that the Chairman was lured. But the question is, why banks don’t help all borrowers when they are in trouble?
Now this news of the extension of service is a real shock. The SBI Chairmen is an honest man. He should refuse to accept an extension and pave the way for one of his successors in the race. SBI executives are chosen from the best talents from the entry-level as probationary officers and trained excellently. Some of them were offered the Managing Director position when they were Dy. Managing Directors. They did well in the Indian Bank, Indian Overseas Bank, Central Bank of India etc. and one is doing well in Yes Bank. But this opportunity is now not given to SBI executives as it affects the bank’s own cadre in the public banks.
In any case, the SBI and the consortium as well as the Board of SBI should immediately review the loan to the Adani Group. The writing on the wall is clear!
Thomas Franco is the former General Secretary of All India Bank Officers’ Confederation and a Steering Committee Member at the Global Labour University.
Centre for Financial Accountability is now on Telegram. Click here to join our Telegram channel and stay tuned to the latest updates and insights on the economy and finance.