Silicon Valley Bank collapse: Indian banks can handle crisis, unlikely to be affected, say analysts

Banks’ strong funding, liquidity to allow them to hold onto their HTM bonds, says Moody’s

Published: 15th March 2023 08:23 AM  |   Last Updated: 15th March 2023 08:23 AM   |  A+A-

 Silicon Valley Bank (SVB)

 Silicon Valley Bank (SVB). (Photo | Flickr)

Express News Service

NEW DELHI: Amid fears that the ill-effects of the collapse of the US-based Silicon Valley Bank (SVB) may spread across banks globally, analysts have pointed out that Indian banks may escape the fiasco with no or minor bruises.

Indian banks’ strong funding and liquidity will allow them to hold onto their held-to-maturity (HTM) securities, Moody’s said on Tuesday amid fears that the failure of two banks in the US will spill over to other countries. According to the global rating agency, Indian banks have faced strenuous solvency challenges in the past decade, but their funding and liquidity have held up strongly and have been a key factor supporting their overall credit strength.

“If Indian banks mark their HTM investments to market, we estimate they would incur losses that amount to 5%-10% of the par values of bonds, or 12%-25% of their CET1 capital. Banks are unlikely to realise such losses as their funding and liquidity are strong enough to allow them to hold onto their HTM securities,” Moody’s said.

SVB had invested in long-term government debt securities holding them till maturity. The notional losses from those investments due to fall in prices of those securities could have been averted if there were no rush among depositors to withdraw their money.

ALSO READ | The Unwinding: Will collapse of $200-billion Silicon Valley Bank trigger major contagion event?

Moody’s report also pointed out that Indian banks’ average liquidity coverage ratio (LCR) stood at a healthy 133% at the end of March 2022, which it feels is understated because it does not include the bulk of their cash reserves at the central bank, as well as parts of their holdings of government securities.

A senior banker on the condition of anonymity told TNIE there is no cause of concern for Indian banks as the business model of SVB was different. We don’t invest much in bonds so risk is less. On an average Indian banks park only 25% in bonds or other investment tools,” he said. He also said unlike SVB, Indian banks’ resources are mostly from household deposits and not from corporate deposits.

Meanwhile, Rajeev Chandrasekhar, Union Minister for State for Skill Development & Entrepreneurship and Electronics & IT also called the Indian banking system “trusted and robust” and assured the Indian startup sector that the Modi-led government is laser focused on helping them tide over this crisis. 

ALSO READ | US, UK try to stem fallout from Silicon Valley Bank collapse

In one of its reports, SBI has said: “While the fall of SVB has been compared to that of Lehman Brothers, there are some notable differences in 2023. The current crisis has originated in deposit taking unlike the investment banks in 2008, which depend on wholesale funding. Global presence of SVB is no match to that of marquee Wall Street banks.”

India Matters


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