LIC, SBI savings at risk amid Hindenburg vs Adani? Here's what banks said

As the shares of Indian billionaire Gautam Adani faced a bloodbath on Friday following a report by a US investment firm claiming the group had committed "brazen" corporate fraud, concerns were raised over its implications for financial stability and 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".

Jairam Ramesh, Congress general secretary in charge of communications, said in a statement that the Hindenburg report demands a response from the Congress party since 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 per cent of LIC's equity assets under management, amounting to a gigantic sum of ₹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 Friday witnessed a sharp fall in shares of group companies and the lenders that have exposure to it, some of India's leading public sector banks said their exposure to the Adani Group was within the limits prescribed by the Reserve Bank of India. RBI allows for no more than 25% of a bank's available eligible capital base to be exposed to any one group of connected companies.

"There is nothing alarming about our Adani exposure and we don't have any concerns as of now," SBI chairman Dinesh Kumar Khara told Reuters.

Khara said the Adani Group hadn't raised any funding from SBI in the recent past and that the bank would take a "prudent call" on any funding request from them in the near future, reported Reuters.

SBI has reached out to the company for clarification and the board will take any decision on the bank's exposure to the group only after that, reported Reuters quoting an unnamed official.

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."

Bank executives at two other private lenders said that they were not yet in "panic mode" but being watchful, according to the report.

Meanwhile, LIC remains undeterred by the fraud allegations and is plowing more money into Adani's flagship unit. The state-controlled life insurer is spending about $37 million as an anchor investor in a $2.5 billion new share sale by Adani Enterprises Ltd., according to a filing. The investment would add to its current holding of 4.23%.

The Adani Group comprises the flagship Adani Enterprises Ltd, as well as Adani Ports and Special Economic Zone Ltd, Adani Power Ltd, Adani Green Energy Ltd and Adani Transmission Ltd.

The ports-to-energy conglomerate said it was exploring legal action against Hindenburg Research calling the report "maliciously mischievous". Hindenburg responded that Adani had ducked the issues its research had raised and instead resorted to "bluster and threats".

"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."