The State Bank of India (SBI) is preparing to turn down a $1-billion loan request from Adani Enterprises intended for a coal project in Australia, scrapping an agreement signed last year, sources said.

The sources said the SBI had not yet given Adani official notice of the internal ruling but the decision was now due to be communicated to the group.

A preliminary loan deal was struck in November, and signed during a visit to Australia by Prime Minister Narendra Modi.

The SBI had said then that the signed deal was a preliminary memorandum of understanding, and that it would do a project appraisal before giving out any cash.

When contacted, SBI chairperson Arundhati Bhattacharya said: “It’s all gossip. There is no fact [in the news reports].” The Adani spokesperson did not respond to repeated calls.

Credit concerns, long gestation scupper Adani loan

India’s largest public-sector bank, the State Bank of India is planning to turn down a request from Adani Enterprises for a S1 billion loan for its Australian coal mining ventures, sources close to the move have said.

“The credit guys are not comfortable with the project,” said one of the sources. “Nothing is moving on that project.”

A second source said on Friday that SBI had weighed factors, including poor coal prices and the lengthy timeline of the $7-billion coal project, before turning down the loan request. Many Queensland coal mines are running at a loss.

A preliminary loan deal was struck in November 2014, and signed during a visit to Australia by Prime Minister Narendra Modi, caused an uproar in India, where Opposition politicians criticised the record loan to a group whose founder is perceived as being close to Mr. Modi. The SBI had said then that the signed deal was a preliminary memorandum of understanding, and that it would do proper due diligence and a project appraisal before giving out any cash.

Adani Enterprises’ Australian project has also been hit by political and environmental opposition, amid protests over the potential impact on the Great Barrier Reef. Adani has said it met a string of environmental conditions.

“It is a challenging project,” said the second source. “The bank has to look at foreign exchange risk also.”

While the final decision has been keenly awaited, few in the industry had expected SBI to press ahead with what would have been the largest ever loan granted by an Indian state-run bank for an overseas project.

But the confirmation brought relief to some investors at a time when state-run banks are under pressure to clean up their balance sheets and to carry out tougher due diligence after years of profligate lending.

“The assumptions when Adani bought the project are simply not valid any more, due to the coal price slump,” said U.R. Bhat, Managing Director at Dalton Capital in Mumbai.

A separate source with knowledge of the loan, said Adani Enterprises, which had more than $11 billion of debt on its balance sheet at the end of September, had been expecting a ‘no’ from SBI and had already begun talks with other lenders.

“They knew things would not go their way...There was always a plan B, and now plan B is activated,” that source said.