Indian banks’ borrowings from outside India are just around 4 per cent to 5 per cent of their total balance sheet sizes. Almost 99 per cent of their lending is also to the Indian borrowers. 
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Indian banks’ borrowings from outside India are just around 4 per cent to 5 per cent of their total balance sheet sizes. Almost 99 per cent of their lending is also to the Indian borrowers. Silicon Valley Bank (SBV) fallout in the US has sent tremors on Wall Street. But should one be worrying about its after effects in India, if any? Not so.
The BSE Bankex fell 2.52 per cent in the last two trading sessions, only to trade flat on Monday morning. If one recalls 2008 Lehman crisis, Lehman had assets worth $680 billion in 2008 while SVB had assets to the tune of $212 billion in 2022. Indian banks withstood the crisis of much bigger bank in 2008, said G Chokkalingam Managing Director – Research at Equinomics Research & Advisory, who said investors in the Indian banking stocks shouldn’t worry at all about the fall of SVB.
"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 per cent to 5 per cent of their total balance sheet sizes. Almost 99 per cent of their lending is also to the Indian borrowers. Why should shareholders of Indian banks cry along with the shareholders of SVB? Quite funny!," Chokkalingam said.
The fourth point is the fact that "Timing is also imperfect for creating any fear in the Indian banking system. Non-performing assets (NPAs) are set to hit a decade low for the Indian banking industry now. Year-on-year credit growth of the Indian banking industry, at around 16 per cemt, is near decade high! Capital adequacy and Provision Coverage for the entire banking industry here are very strong as compared to recent past," he said.
Lastly, valuations of the most private banks have corrected recently as compared to recent historical average valuation multiples.
SVB failure
Abhishek Agarwal Managing Partner Rockstud Capital said SVB's failure is a classic case of having too much on the table and getting complacent over past successes. The asset liabilities mismatch is the worse example for a financial institution, he said.
Nomura in Asia market report said investor sentiment is likely to remain fragile in the near term against the background of US banking sector concerns.
"In the very near term, market focus will likely remain on the fallout from the failure of SVB, in particular: risk of contagion in the US banking system — especially whether there are deposit outflows from other relatively smaller regional banks; whether SVB would be taken over by a larger institution (likely incrementally risk positive); and if there is no bailout/acquisition, what is the extent of losses uninsured depositors at SVB might have to take and how soon they are settled,"
Fed to turn less hawish?
Chokkalingam said traders in the US are once again pricing in the possibility that the central bank might soon back off hikes and actually lower rates by year end. That led to the two-year US Treasury yield’s biggest two-day drop since 2008, jhe said.
"This bank’s fall could be actually proven to be a good development for the whole markets – US Fed might even go less aggressive on rate hikes fearing possible fall of a few more banks," he said.
Chokkalingam said whatever happens to the US banks it is their problem and that India's banking system is solid and steady and would remain stable unless the fall of banks in the US leads to worldwide recession.
Chokkalingam noted that a day before the collapse in SVB, its US depositors tried to pull out over $42 billion from SVB. Otherwise, this bank had posted big losses much before this crisis, he noted.
"It was a problem of lack of confidence in this bank. Here back home, we don’t have to worry much now on the possibility of depositors losing confidence in the Indian banking system at this juncture– despite huge jump in interest rates and also significant fall in GDP growth rate in the latest quarter as compared to
recent historical average, our banking system remains robust in terms of both quality of assets and also credit growth," he said.
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