Is it prudent for the SBI-led consortium of PSU banks to extend loan assistance to the Adani Group’s Mundra Petrochemical unit in Gujarat?


Smt Nirmala Sitharaman

Union Finance Minister

Dear Smt Sitharaman,

It is reported ( that an SBI-led consortium of PSU banks is considering extending loan assistance to cover a significant portion of the cost (Rs 34,000 Crores) of the petrochemical project to be set up by  Adani Group’s Mundra Petrochem Ltd (MPCL) in Gujarat.

If the above-cited report is correct, it raises serious concerns about its prudence and propriety, as indicated below:

  1. According to reports (, the total debt of the top five Adani companies has increased to Rs 2 lakh Crores during the last three to four years, of which PSU banks like the SBI have a 30% share. Meanwhile, there have been several reports on the highly leveraged manner in which the Adani Group companies are being operated (, which raise concerns about the extent of its own equity funds that the group has deployed in projects/ acquisitions, in comparison with loan funds obtained from financial institutions.
  2. The disclosures filed by several Adani Group companies before the National Stock Exchange (NSE) indicate unduly large numbers of “related party transactions”, including inter-corporate loans/deposits/ guarantees etc. For example, the disclosures for the 6-month period ending 31-3-2023 by Adani Gas (filed on 2-5-2023), Adani Transmission (filed on 29-5-2023), Adani Ports (filed on 30-5-2023) and Adani Energy (filed on 29-5-2023) indicate 106, 655, 1457 and 655 such related party transactions, some of which involve transfer of funds, issue of guarantees and so on. Apart from pointing to the high degree of leveraging of funds, one should not be surprised if a portion of the funds obtained from financial institutions, including the SBI and the other PSU banks, towards project finance, are covered by some of these transactions. As shown in these disclosures, MPCL also figures in some of those related party transactions. Have the PSU banks, especially, the SBI, done due diligence on this? What are the safeguards put in place by the SBI to ring-fence the loan funds tied to project financing to prevent diversion for non-project purposes? What action has it taken on earlier cases of diversion, if any, of loan funds obtained from the SBI and the other PSU banks?
  3. Rescheduling corporate debt is not new in the Indian context ( Debt rescheduling was forced on PSU banks by some corporate entities when they obtained loans in the past which they could not repay on time. Had the PSU banks exercised due diligence at the time of sanctioning loans, they would have preempted the possibility of the loanees seeking debt rescheduling concessions. While sanctioning loan assistance to the MPCL, the SBI and the other PSU banks should review the past track record of the Adani Group in that respect and make sure that MPCL has the capacity to service the debt in question.
  4. The CPSE banks are expected to re-orient their credit strategies towards climate-friendly projects ( The petrochemical project which the SBI-led consortium proposes to fund as cited, does not seem to fit into that framework, as the carbon footprint of coal-to-PVC technology according to the available scientific literature on the subject [ Annals of Operations Research of May 2021] indicates that the coal-to-PVC route generates around 3.4 times of carbon in weight compared to the production of PVC through the oil route. Does it not come in conflict with India’s commitments to climate improvement measures at different global platforms?
  5. The SBI and the other PSU banks are deemed to be an arm of the State under Article 12 of the Constitution and the decisions taken by them on loans such as the one cited are deemed to be taken on behalf of the State. Moreover, the Directors appointed by the government and the RBI under Section 19(e) & 19(f) of the SBI Act directly represent the Ministry of Finance and the RBI respectively in reference to the decisions taken by the SBI’s Board of Directors on such corporate loans. Therefore, both the Ministry of Finance and the RBI are parties to the decision, if any, taken by the SBI on extending loan assistance to the Adani Group’s MPCL unit in Gujarat. This calls for utmost prudence on the part of the nominees of the Ministry of Finance and the RBI in considering this case.
  6. RBI is the authority that regulates the banks under the Banking Regulation Act. On the face of it, the fact that the RBI regulates the banks including the SBI and that the RBI’s nominee is simultaneously a Director on the SBI’s Board implies an open conflict of interest.
  7. As if this is not enough, RBI’s recent notification dated 8-6-2023 on “Framework for Compromise Settlements and Technical Write-offs Board-approved policy” introduced changes vis-a-vis the earlier notification dated 7-6-2019, that raise concerns about the underlying motives and their timing with reference to the kind of corporate loans as in the instant case. The changes referred to are as follows:

Para 34 of the 2019 notification stipulated, “Borrowers who have committed frauds/ malfeasance/ wilful default will remain ineligible for restructuring. However, in cases where the existing promoters are replaced by new promoters and the borrower company is totally delinked from such erstwhile promoters/management, lenders may take a view on restructuring such accounts based on their viability, without prejudice to the continuance of criminal action against the erstwhile promoters/management

In contrast, the latest notification dated 8-6-2023 reads as follows:

Para 6 (ii): proposals for compromise settlements in respect of debtors classified as fraud or wilful defaulter, as permitted in terms of clause 13 of this Annex, shall require approval of the Board in all cases.

Para 13 (Annexe): REs (regulated entities) may undertake compromise settlements or technical write-offs in respect of accounts categorised as wilful defaulters or fraud without prejudice to the criminal proceeding underway against such debtors

In other words, RBI has, for reasons best known to it, made a volte-face and abruptly relaxed the 2019 stipulation that no “compromise settlement” would be permitted in the case of “borrowers who have committed fraud/ malfeasance/ wilful default“, implying that a borrower who has committed fraud or one against whom criminal proceedings for fraud are ongoing, in respect of funds borrowed from a bank, would hereafter be eligible for loans from that bank. Fraud implies a promoter falsifying accounts and syphoning off the borrowed money for personal gains. It may also involve laundering the borrowed money to overseas shell companies either for tax evasion or for misusing it to manipulate the domestic stock market, as has been the case with several wilful defaulters in recent times.

Allowing wilful defaulters charged with violating the law of the land and misappropriating funds already borrowed from the banks, to borrow additional amounts from the same banks, would amount to outright condonation of fraud and making a mockery of the legal system we have.

In view of the above concerns, I would request the SBI and the other PSU banks concerned, including the nominees of the Ministry of Finance and the RBI on their Boards to exercise utmost prudence in dealing with the proposal for extending loan assistance to MPCL. I hope there are no extraneous considerations in regard to this case. I hope that the nominees of the Ministry of Finance and the RBI tread cautiously in moving forward with the said proposal.


Yours sincerely,

E A S Sarma

Former Secretary to the Government of India



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