Even as US-based major lender Silicon Valley Bank (SVB) is facing a collapse, there is a fear in the market about its impact on Indian banks. However, Macquarie Group said as Indian banks largely rely on local deposits, it cushions them.
Amid all the “gloom and doom” in global banks, Indian lenders are distinguished with “hardly any exposure directly or indirectly to SVB”, according to a Bloomberg report quoting Macquarie analyst Suresh Ganapathy. He added that the sector has “a domestic deposit funded system with investments in Indian government securities”.
In a note on Friday, Ganapathy also retained his bullish outlook for Indian lenders, expecting a “goldilocks scenario” for the next two years due to strong asset quality.
Jefferies Financial Group has also echoed the Macquarie view. It said SVB Financial Group poses low potential risk to India as a subsidiary was sold in 2015 and a rebranded version of that company has good credit rating and stable liquidity, according to a Bloomberg report.
HSBC on Monday said it is acquiring the UK subsidiary of Silicon Valley Bank for 1 pound. The move by HSBC comes after US authorities moved to shore up deposits and stem any wider fallout from the sudden collapse of its parent, tech start-up lender Silicon Valley Bank. As of March 10, Silicon Valley Bank UK Limited had loans of around 5.5 billion pounds and deposits of around 6.7 billion pounds, HSBC said.
The collapse of Silicon Valley Bank, also know as SVB, is being termed as the biggest bank failure since the crisis at Washington Mutual in 2008 or the global financial crisis. This was the 16th biggest lender in the US and was the go-to bank for several startups across the world.
The bank failed after clients — many of them venture capital firms and VC-backed companies that the bank had cultivated over time — began pulling out their deposits, creating a run on the bank. The SVB collapse led investors to speculate that the Fed would now hesitate to hike interest rates by a super-sized 50 basis points this month.
SVB’s regulatory filing last week showed that it has a negative cash balance of $958 million. SVB’s shares plunge 41 per cent, its biggest slump since 1998. “Despite the bank being in sound financial condition prior to March 9th, investors and depositors reacted by withdrawing $42 billion of deposits, causing a run on the bank,” says the filing.
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