India is more vulnerable to the fate of Swiss lender Credit Suisse than it is to the collapse of US-based Silicon Valley Bank, brokerage firm Jefferies has said, weighing on the banking crisis playing out on both sides of the Atlantic.
With more than Rs 200 billion worth of assets in India, Jefferies said Credit Suisse was the 12th largest offshore lender. Notably, 73 percent of its total liabilities in India are in the form of loans, mostly short-term ones.
Early on March 16, Credit Suisse announced that it was borrowing up to $54 billion from the Swiss central bank to resuscitate liquidity amid fears of a broader bank deposit crisis.
Swiss financial regulator FINMA and the Swiss central bank pacified investors, saying Credit Suisse "meets the capital and liquidity requirements imposed on systemically important banks."
But the last few months have been turbulent.
During the December quarter of the financial year 2022-23, the global customer deposit base and total assets of Credit Suisse shrank 37 percent and 24 percent sequentially.
Also read: Indian lenders will pass acid test of Silicon Valley Bank collapse, says Jefferies
The lender has a major hold in India’s derivatives market, which is why Jefferies expects the Reserve Bank of India to watch out for any liquidity issues or counter-party assessment risks posed by the Credit Suisse crisis.
“Given the relevance of Credit Suisse to India's banking sector, we see softer adjustments in assessment of counter-party risks, especially in the derivative market. We expect RBI to keep close watch on liquidity issues, counter-party exposures and intervene as necessary. This may also lead to institutional deposits moving more towards larger/ quality banks,” read the research note from Jefferies.
That said, foreign banks constitute only 6 percent of banking assets, of which Credit Suisse accounts for 1.5 percent. This is why Jefferies predicts a “softer impact on banking in India”.
Indian banks have a solid asset liability management position, with only about 25 percent of their deposits forming investments in securities.
This provides a buffer for the market to fall back on during accidents such as the collapse of SVB.
It is worth noting that a majority of YCombinator-backed startups, which typically deposited their income in SVB, have their working capital stuck. About 60 percent of YCombinator-funded startups have exposure to SVB.
(With agency inputs)
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