The collapse of Silicon Valley Bank and Signature Bank is unlikely to impact the Indian banking sector as Indian banks have high capital adequacy and a very large share of assets under management, former NITI Aayog vice chairman Rajiv Kumar said.
“The last 2008 crisis didn’t affect the Indian banking sector. The same scenario will play out now. All large banks in India have 14-16 capital adequacy ratio which gives them the resilience to bear with this (US bank crisis),” Kumar said at Moneycontrol Policy Next.
Silicon Valley Bank, which was a key funding source of startups in the US, collapsed on March 10. This was followed by the failure of Signature Bank on March 12. The 2007–2008 was a severe worldwide financial economic crisis that occurred in the early 21st century.
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Capital adequacy ratio (CAR) is the ratio of a bank's capital in relation to its risk weighted assets and current liabilities. “Our banking sector is quite well regulated and very well capitalised. Our capital adequacy norm is higher than recommended by Basel norm. The PSBs still have a very large share of assets under management,” he said.
Indian public sector banks must maintain a CAR of 12 percent while Indian scheduled commercial banks are required to maintain a CAR of 9 percent. Under Basel III, the minimum CAR that banks must maintain is 8 percent. "I am confident that the Indian banking sector, unlike Korea or Indonesia, will not face any impact of the US banking crisis", Kumar mentioned.
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