Banks reviewing Adani exposure, SBI says no devolvement worry
- January 30, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Banks reviewing Adani exposure, SBI says no devolvement worry
Subject : Economy
Section: Money market
Concept :
- According to a report by investment firm CLSA, the top-five Adani Group companies – Adani Enterprises, Adani Ports, Adani Power, Adani Green and Adani Transmission – have a consolidated debt of Rs 2.1 lakh crore.
- According to the State Bank of India, the country’s largest lender, as the bank’s exposure to the Adani Group is well below the Large Exposure Framework (LEF) of the RBI and is secured by cash generating assets with adequate TRA (trust and retention account)/ escrow mechanism in place, debt service will not be a challenge.
- SBI said that there is no concern or likelihood of any devolvement at this juncture.
Devolvement
- Devolvement refers to a situation when a security or debt issue is undersubscribed, forcing an underwriting investment bank to purchase unsold shares during the offering.
- In the underwriting process, an investment bank will help to raise capital for the issuing companies. The bank may include making a commitment to the company to sell all shares of the issue.
- Devolvement may happen in the issue or selling of company debt and also through selling an initial public offering (IPO).
- Devolvement may indicate that the market sentiment toward the issuing company is negative.
- Many times, the bank will experience a financial loss if they are unable to sell all the securities available and devolvement occurs.
- For this reason, investment banks may attempt to mitigate their exposure by including clauses in their contracts with issuing companies that eliminate or limit their devolvement risk.