India banking sector, markets stable: RBI, SEBI
However, the adverse impact on common investors is likely to raise questions on investment research firms/rating agencies like CRISIL Ltd and their real motives
Steep falls and rises due to manipulation hits investors hard
Following the sharp losses in the Indian stock market and uproar from the opposition parties after a report by US firm on Adani Group in India, the Reserve bank of India (RBI) has issued a statement reiterating that the Indian banking sector remains resilient and stable.
Last week, US-based Hinderburg Research published a report on the Adani Group, alleging fraud and misappropriate increase in its share prices. The firm claims that it uses loopholes in a company’s accounting and finances to publish damning reports that usually brings down the share prices of such firms sharply, usually 60-80% in a week or so, which enables it to gain huge profits in the same period by using “short-selling”.
Adani Group had announced an FPO, which was called off after a successful sale. The Chairman said money will be refunded to the buyers and the FPO will be issued again in future.
There were questions on India’s banks and NBFCs’ exposure to Adani following the report. Some uninformed ministers even claimed that SBI and LIC had 20-30% exposure.
However, the RBI said that such claims aren’t true. In a press release dated 3 February 2023, the RBI said, “As the regulator and supervisor, the RBI maintains a constant vigil on the banking sector and on individual banks with a view to maintain financial stability. The RBI has a Central Repository of Information on Large Credits (CRILC) database system where the banks report their exposure of Rs.5 crore and above which is used for monitoring purposes.”
It added, “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.”
“The RBI remains vigilant and continues to monitor the stability of the Indian banking sector” it said.
The Securities and Exchange Board of India (SEBI) also reiterated RBI’s view. It said in a statement dated 4 February 2023, “The Indian financial market as represented by Sensex and Nifty has demonstrated ongoing stability and is continuing to function in a transparent, fair and efficient manner.”
“During the past week, unusual price movement in the stocks of a business conglomerate has been observed. As part of its mandate, SEBI seeks to maintain orderly and efficient functioning of the market and has put in place a set of well-defined, publicly available surveillance measures (including the ASM framework) to address excessive volatility in specific stocks. This mechanism gets automatically triggered under certain conditions of price volatility in any stock.” SEBI also continues to monitor the situation.
However, the real question is the exposure of Hinderburg Research to Adani, and why are short-sellers not monitored, given their adverse impact on lakhs of small and big investors. The work of rating agencies and research companies like CRISIL Ltd and Credit Suisse in India are shrouded in mystery. They regularly impact the share prices of companies just by initiating and stopping coverage on a company.
Further, the huge volatility in commodities, F&O, and share prices make it impossible for the common investors to use research to enter or exit, given the immense control of such firms on these instruments.
It is important for the government and SEBI to plug these gaps after thorough investigation so that the stock market becomes more transparent and gains are based on intelligence and not manipulation.
This is the right time to fix the short sellers and other HNWIs given India is on a cusp of financial dominance with record number of DEMAT accounts in 2021-22, and investors looking to gain from foreign stock markets too.
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