The collapse of Silicon Valley Bank (SVB) has shaken-up the financial and tech circles across the globe. Other lenders including Signature Bank, First Republic Bank, etc also have felt the severe jolts. Aftershocks were felt even in Asia as Japan’s Topix Bank index plunged over 7 per cent on Tuesday.
The mass liquidations and withdrawal of the funds from the banks has forced White House to come to rescue as the US president Joe Biden recently ‘promised’ to protect taxpayers’ money.
Now, the panic has spread among the Indian investors too who fear that the SVB collapse may worsen in the days to come with a domino effect coming on the Indian lenders too. However, market participants tracking the domestic banking sector completely rule out the possibility of any such event in India.
Calming the worries of Indian investors about domestic banks, G Chokkalingam, Managing Director – Research at Equinomics Research and Advisory has clearly denied that Indian investors have anything to worry about, while drawing comparison with the financial crisis of 2008-09.
After falling 72 per cent during the 2008-09 crisis, BSE Bankex jumped 4 times within 18 months to 15,108 in 2010 from its low at 3,599 in 2009. However, BSE’s banking gauge has fallen about 5 per cent in the last two sessions.
During 2008-2009, western investors panicked here in India too and sold off equities across the board, especially the banking stocks, and rushed back to the western world with dollar kitty only to lose great opportunity in India in the very next year, Chokkalingam said.
“It was like when a building was shaking badly, people rushed from stronger and steady buildings to shaky buildings to take shelter,” he added. “Investors in the Indian banking stocks shouldn’t worry at all about the fall of SVB. Banks withstood the crisis of much bigger banks back then,” he said.
The collapse of the Lehman Brothers, which was the biggest US bankruptcy back then, had assets worth $680 billion, in comparison, SVB’s assets are much less, pegged at $212 billion in 2022.
Adding more to it, Chokkalingam said that Indian banks do not depend much on western economies or their financial services industry significantly. Indian banks’ borrowings from outside India are just around 4-5 per cent of their total balance sheet sizes. Almost 99 per cent of their lending is also to the Indian borrowers.
Even the Reserve Bank of India’s (RBI) financial stability report dismisses the possibility of a Silicon Valley Bank-type crisis in the Indian banking system. Though, the report was released three months ago. It suggested the banking system in India remains sound.
Echoing the similar tone, Deepak Shenoy, Founder and CEO at Capitalmind told Business Today that nothing will happen to the Indian banks. “This kind of situation is unlikely to happen in India and domestic banking sector is in safe hands and RBI has done a really good job.” he said.
The collapse of SVB, as many have pointed out, was primarily because of a twin crisis — rising interest rates and a drought in start-up funding. With the Fed raising interest rates aggressively to control inflation, the value of existing bonds that were issued at lower interest rates has fallen. Banks owning these bonds are, as a result, sitting on steep unrealised losses. SVB was one such bank.
The problem arose for the bank when it was forced to sell these securities to cover for withdrawals in deposits. Another facet of the rising interest rates was the decline in funding for start-ups as the venture capital ecosystem reduced its pace.
The global brokerage firm Macquarie remained positive on the Indian banking sector as it believes that low credit costs will continue to drive multi-year high ROAs and the EPS upgrade cycle continues. HDFC Bank, ICICI Bank and IndusInd Bank remain its top picks from the sector.
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