Credit Suisse Crisis Unlikely To Impact India's Banking System, Say Experts

India’s banking system is expected to remain unscathed from the troubles in Credit Suisse as it has a very small presence in the country, experts said.

Although Credit Suisse is more relevant to India’s financial system than Silicon Valley Bank (SVB), it has very limited operations, according to a report by Jefferies India.

Jefferies said the fate of Credit Suisse is of greater importance to the Indian banking sector than the collapse of SVB.

The Switzerland-based bank, the report said, “has less than Rs 20,000 crore in assets (12th among foreign banks), presence in the derivatives market and funded 60 per cent of assets from borrowings, of which 96 per cent are up to two months. Still, it’s small for the banking sector with 0.1 per cent share of assets.”

Zurich-headquartered Credit Suisse operates in India with just 1 branch.

“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,” the report said.

“We expect RBI to keep a close watch on liquidity issues, and counter-party exposures and intervene as necessary. This may also lead to institutional deposits moving more towards larger/ quality banks,” the report added.

The RBI is keeping a close tab on the evolving situation caused due to shuttering of a few banks and stress in other global lenders.

Shaktikanta Das, the governor of the RBI, said on Friday that India’s banking system continues to be stable and resilient despite the shock waves from the global banking crisis.

The central bank has been constantly engaging with banks and has nudged them to adopt robust risk management practices, conduct periodic stress tests and build sufficient capital buffers, Das said.

Veteran banker Uday Kotak, the managing director of Kotak Mahindra Bank, India’s macroeconomic factors are turning better and it can stand out in this global financial turmoil.

“Even as the global turmoil continues in financial markets, the macro factors are turning better for India. The current account deficit looks below 2.5 per cent in FY 23 and going below 2 per cent in FY 24. Lower oil helps. If we walk our talk and navigate well, India can stand out in this turbulence,” Kotak said in a tweet.

Moreover, Credit Suisse’s shares on Wednesday plunged as much as 30 per cent, after its largest shareholder Saudi National Bank (SNB) said it could not provide further support.

Saudi National Bank, which holds 9.88 per cent of Credit Suisse, said it would not buy more shares on regulatory grounds.

Credit Suisse is battling to recover from a string of scandals that have undermined the confidence of investors and clients.

Credit Suisse is the first major global bank to be given an emergency lifeline since the 2008 global meltdown and its problems have raised doubts over whether central banks will be able to sustain their fight against inflation with aggressive interest rate hikes.

While Credit Suisse may repeat the liquidity crisis of Silicon Valley Bank, its impact, however, may be muted in India as domestic financial institutions are not as interconnected with the international financial system as those of other nations, news agency PTI quoted Neeraj Tyagi, co-founder and CEO, We Founder Circle, as saying.

The Silicon Valley Bank collapse has been termed as the biggest retail banking failure since the global financial crisis in 2008. SVB’s customers include some of the biggest technology startups. The collapse resulted in a loss of nearly $2 billion to SVB.

Even if Credit Suisse fails, the implications on the Indian economy will be limited, Tyagi said, adding, the Indian ecosystem now has its own depth with the influx of large angel investors and the expansion of alternative investment options. “We expect to take in the impact much better than the US ecosystem,” he added.

Moreover, foreign banks have a relatively smaller presence in India with a 6 per cent share in total assets, 4 per cent in loans and 5 per cent in deposits. They are more active in the derivative markets (forex and interest rates) where they have a 50 per cent share, PTI reported.

Most of them are present as branches of the parent bank with only a few present as wholly-owned subsidiaries.

However, Swiss National Bank (SNB) came to the rescue of Credit Suisse with a USD 54-billion lifeline to shore up its liquidity.

In its statement on Thursday, Credit Suisse said it would exercise an option to borrow from the central bank up to 50 billion Swiss francs (USD 54 billion).

(With inputs from agencies)

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