SBI, REC to PFC: Why are banking stocks falling? Experts see Gautam Adani connection

Several banking and NBFC stocks, including State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda, REC, and PFC among others suffered losses of up to 7% on Thursday. This came amid a broader market sell-off triggered by the news that US federal courts had charged Gautam Adani in an alleged bribery scheme.

Bank of Baroda shares plunged over 7%, while Punjab National Bank shares cracked as much as 6%, followed by Canara Bank and SBI stock prices falling more than 5% each. IndusInd Bank and IDFC First Bank shares also declined over 3% each. The Nifty Bank index was trading 0.6% lower.

The state-run REC Ltd share price tanked over 9% and Power Finance Corporation (PFC) shares cracked 8% amid concerns over their exposure to Adani Group companies.

Bribery Charges on Adani

US prosecutors charged the Indian conglomerate’s chairman Gautam Adani and seven others over an alleged multimillion-dollar bribery and fraud scheme.

They said Adani and seven other defendants, including his nephew Sagar Adani, agreed to pay about $265 million in bribes to Indian government officials to obtain contracts expected to yield $2 billion of profit over 20 years and develop India’s largest solar power plant project, Reuters reported.

Adani Group stocks cracked up to 20% after the report, with Adani Enterprises, Adani Ports & SEZ, Adani Energy Solutions and others suffering heavy losses.

Banks Under Pressure

The banking stocks came under pressure because of concerns over their loan exposures to Adani group companies. However, analysts believe the development would have no major impact on the banking stocks.

“The fall in banking stocks seems to be a temporary reaction. The banks’ exposure to Adani group companies is secured. The fundamentals of Indian banks remain well and we are positive on the overall BFSI sector,” said Sudip Bandyopadhyay, Group Chairman of Inditrade Capital.

Avinash Gorakshakar, Head of Research at Profitmart Securities, also believes that there is no major worry for the Indian banking sector due to the latest developments related to the Adani Group.

“The Indian banks are well covered with their assets. The latest developments will not create any major panic in the banking system. This is just a temporary reaction and investors are advised to stay calm. The banking system remains strong with good asset quality,” said Gorakshakar.

Adani Group's debt portfolio has seen a shift, with domestic banks and non-banking financial companies (NBFCs) now accounting for 36% of its total debt, a media report said.

As of March 31, 2024, Indian banks and NBFCs had extended over ₹88,000 crore in loans to the Adani Group, contributing to a total debt of ₹2,41,394 crore. This marks a significant increase compared to March 31, 2023, when domestic lenders’ outstanding loans stood at ₹70,213 crore or 31% of the group’s total debt of ₹2,27,248 crore.

The three major public sector banks — SBI, PNB, and Bank of Baroda — have collectively extended loans exceeding ₹40,000 crore to the group, said the report.

Additionally, the group’s borrowings from the domestic capital market have also risen, reaching ₹12,404 crore as of March 2024, up from ₹11,562 crore in the previous fiscal year, the report added.

The spokesperson of Adani Group stated that the allegations made by the US Department of Justice and the US Securities and Exchange Commission against directors of Adani Green are baseless and denied.

“As stated by the US Department of Justice itself, ‘the charges in the indictment are allegations and the defendants are presumed innocent unless and until proven guilty.’ All possible legal recourse will be sought,” said Adani group spokesperson in a statement.

“The Adani Group has always upheld and is steadfastly committed to maintaining the highest standards of governance, transparency and regulatory compliance across all jurisdictions of its operations. We assure our stakeholders, partners and employees that we are a law-abiding organisation, fully compliant with all laws,” the statement added.

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