In less than two weeks, global financial markets have seen billions of dollars wiped out from stock valuations, mainly due to a continuous fall in banking sector shares. Banking crises in Europe and America have jolted the financial world. America’s Silicon Valley Bank and Signature Bank collapsed. Talking about Europe, the legendary Credit Suisse Bank was struggling when the Swiss government brokered a deal allowing UBS to take over the embattled lender. Banks in India too are feeling the heat of this global turmoil.
Impact of global banking crisis on Indian banks
Experts are of the view that the Indian banking system will remain insulated against the troubles happening in the US and Europe due to their small or no presence in the country. The Indian government and the central bank have also expressed confidence in the country’s banking system.
Jefferies India in a report said that although Credit Suisse is more relevant to India’s financial system than Silicon Valley Bank (SVB), it still has very limited operations,
Other analysts also echoed similar views, saying foreign banks such as Credit Suisse have limited presence in India, so as a result, the direct impact of the crisis is minimum. Zurich-headquartered Credit Suisse operates in India with just 1 branch.
Factors that indicate resiliency of Indian banks
Capital adequacy and liquidity ratios: The Indian banking system is strong enough to tide over current crisis in the global market as it has strengthened itself on all parameters over the years. In terms of capital adequacy and liquidity ratios, Indian lenders have performed well in the recent past and it worked as a buffer to safeguard from the present crisis.
Better macroeconomic position: According to experts, India’s macroeconomic indicators are improving day by day and it can stand out in this global financial turmoil.
Credit growth and asset quality: According to analysts and experts, Indian banks have seen boost in their profitability in recent past, thanks to improvement in asset quality and robust growth in credit. Though it is expected that there will be some pressure on margins as deposit rates going up, banks are in a much better shape to cushion its impact.
Banking regulations: Irrespective of challenges, Indian banks are capable to safeguard themselves on the back of strong banking regulations that have been put in place, said analysts.
