Some social media users linked with the opposition parties last week, particularly the Congress party, rushed to social media to promote a post alleging that the State Bank of India has erased the debt owed of Rs. 12,770 crores to industrialist Gautam Adani for the Navi Mumbai airport.
Social media users slammed the Modi government and the state-run bank State Bank of India for ‘waiving off’ a Rs.12,770 crore lender to Gautam Adani’s Navi Mumbai International Airport (NMIAL) project while charging ordinary people exorbitant bank fees.
Chikku, a social media user, claimed in an infographic that the Modi government helped Gautam Adani become Asia’s wealthiest by looting Indian banks. He implied that the government had put pressure on SBI to waive a Rs.12,770 crore loan to Adani’s Navi Mumbai airport.
Another social media user, supposedly a Congress supporter, claimed that the SBI had written off Adani’s Rs.12,770 crore debt for his Navi Mumbai airport. He claimed that by writing off the loan, Gautam Adani was given the Mumbai airport.
Aparna, a social media user sympathetic to the Congress party, also claimed that individuals defaulting on a Rs.6 lakh loan would be hounded and our property would be taken over, whereas SBI will fund Adani’s business by writing off the loan.
The social media users were so eager to criticise the Modi administration and Gautam Adani that they even failed to understand the fundamental difference between waiving off, writing off, and underwriting a loan.
For starters, members of the Congress party appear to be unaware of the difference between writing off and waiving off a loan. They frequently use it interchangeably to criticise the Modi government. There is a significant difference between restructuring a loan and completely ‘waiving off’ a loan.
Next, they openly lie that the Modi government has written off or waived a loan of Rs. 12,770 crores taken out by Gautam Adani to fund his Navi Mumbai port.
The claim made by social media users, on the other hand, is completely false. The Modi government or the SBI have not waived or written off any of Gautam Adani’s loans.
The Congress supporters point to a recent financial agreement between India’s largest bank, State Bank of India, and Adani Group’s Navi Mumbai International Airport (NMIAL) to “underwrite” the project’s entire debt requirement of Rs.12,770 crore.
The Adani Group signed a financial closure for the Navi Mumbai International Airport (NMIAL) project with a Rs 12,770-crore loan from the State Bank of India (SBI).
So, what exactly does “loan underwriting” imply? Is it the same as waiving or cancelling a loan?
No, a lender underwriting a loan is not the same as waiving or writing off a loan. The term “write-off” refers to the process of cleaning up a bank’s balance sheet in order to depict the actual status of the bank’s assets and liabilities. The write-offs are not loan waivers, because waiving off a loan means the borrower is technically exempt from repayment.
However, underwriting the loan is not the same as the previous two.
Underwriting a loan refers to the process by which a lender determines whether an applicant is creditworthy and should be approved for a loan. As a result, an efficient underwriting and loan approval process is essential for granting a loan, particularly for large-scale projects.
During the underwriting process, the lender, in this case SBI, looks for favourable portfolio quality of the loanee, Adani Group, in order to assess the debtor’s creditworthiness. It is to avoid as many unnecessary risks as possible if the project is deemed a failure.
This is a prudent and standard procedure used by financial institutions in advanced economies to assess a debtor’s creditworthiness. It is not uncommon in India.
Adani Group has finalised an underwriting agreement with the SBI to seek a loan of Rs.12,770 crores for its Navi Mumbai airport project. The agreement has nothing to do with the loan being written off or waived. It simply means that SBI assessed Adani Group’s proposal and decided to approve the loan.
Because the loan was only approved by SBI, there is no way to waive it as Adani Group has not defaulted on payments. As a result, it is completely incorrect to claim that the SBI has written off or waived a loan of Rs.12,770 crores given to the Adani group.
It is also worth noting that loan underwriting differs from insurance underwriting, and the SBI-Adani deal is an instance of loan underwriting. The insurer accepts a risk in exchange for a fee, the insurance premium. However, loan underwriting is simply the process of evaluating a loan application.