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SVB crisis | No major impact on Indian banking system, say experts

Indian banks at present are well secured in terms of lending ratios, say bankers

March 11, 2023 / 08:44 PM IST

The Indian banking system is unlikely to witness any major spillover effects from the collapse of Silicon Valley Bank (SVB) in the United States, bankers and experts said.

"There will be no major impact on the Indian banking system," Rajnish Kumar, former chairman of State Bank of India, told Moneycontrol.

SVB has been shut down by regulators and its assets have been seized, the Federal Deposit Insurance Corporation (FDIC) said on March 10.

The closure order was issued by the California Department of Financial Protection and Innovation, which also named the FDIC as the receiver.

"It is unlikely to impact our banks as they are large and don't have such exposures. The issue here is deposits that came from startups and in order to make up for the shortfall, it sold securities which have diminished in value. We don't have such a situation. SVB is too small a bank to have ripple effects even on the US banking system. The regulator has already stepped in," said Madan Sabnavis, Chief Economist, Bank of Baroda.

"As far as Indian banking is concerned, it will have absolutely no impact. Indian banks at present are very well-secured in terms of lending ratios. As regards the equity market, it will have a minimal impact. Anything major that happens in the world impacts every market in the world, but not in the long term," said JN Gupta of Stakeholder Empowerment Services.

A broker, who did not wish to be named, said investors are watching the markets with caution.

"The effect of the Silicon Valley Bank crisis was reflected in investors in the Indian market. Share prices of most banks fell as the market sentiment was negative with the perception that the SVB crisis could affect the global banking industry," a broker told Moneycontrol on condition of anonymity.

"Investors are keeping a cautious eye on the global banking sector. We feel that there would not be any major effect on the banks in India, but investors are watchful," the broker said.

Prabhakar AK, Head of Research at IDBI Capital, said India has a robust banking system. "We never had a history of a bank collapse. There are a few failed cooperative banks that are not regulated by the RBI, but they are very small. In India, even bigger private banks are monitored carefully by the central bank. But there will be some overall impact on the equity market because of the liquidity crises there, people losing money there," he observed.

Earlier, veteran banker Uday Kotak, CEO of Kotak Mahindra Bank, had said that high interest rates are bound to impact weak banks.

"When interest rates move up 500 bps from zero in a year, an accident was waiting to happen somewhere," said Kotak in a recent tweet.

Vikas Gupta, CEO and Chief Investment Strategist, OmniScience Capital, a global investment management firm, further explained that the US banking system will act aggressively to save the situation from escalating, given the still recent memory of the Global Financial Crisis in 2008.

"I am confident that the Reserve Bank of India (RBI) is fully seized of the matter and aware of the details of each major cross-linkage between Indian entities and SVB," he added.

Harsh Kumar “ is Correspondent at Moneycontrol based in Delhi. Harsh covers BFSI sector. You can reach him at
Jinit Parmar
Jinit Parmar is a correspondent based out of Mumbai covering banks, banking trends and more, tweets @jinitparmar10 #banks #bankingtrends #RBI
first published: Mar 11, 2023 08:16 pm