Banking crisis in US and Europe won't have any material impact on Indian banks: Analysts

Banking crisis triggered by the collapse of Silicon Valley Bank (SVB) and Signature Bank in the US and a near fall of Swiss banking giant Credit Suisse has affected investment sentiments but is unlikely to have any material impact on Indian banks, analysts said.

“We don’t see any material impact on Indian banks except poor investment sentiment,” said Ajit Kabi, banking analyst at LKP Securities.

Kabi said the proactive risk management initiatives by the regulator is likely to protect the balance sheet of Indian banks under any adverse scenario.

The concept of liquidity coverage ratio introduced by the Reserve Bank of India (RBI) in 2019 has enhanced Indian financial institutions ability to handle liquidity pressure.

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Kabi said the public sector banks are more immune to liquidity risk as their liquidity coverage ratio is higher and credit deposit ratio is low.

The loan to assets ratio for Indian banks is around 36 per cent against 65 per cent for Silicon Valley Bank. Additionally, the investment is more into the government securities on SLR accounts. SLR (Statutory Liquidity Ratio) is the minimum proportion of deposits that banks have to invest in government securities.

The deposit base for Indian banks is very granular as top 20 depositors contribute around 9 per cent of total deposits, Kabi noted.

Foreign banks have a relatively smaller presence in India. It accounts for just around 4 per cent of total loans and nearly 5 per cent in deposits. The share of foreign banks in total assets is around 6 per cent.

According to data presented by the union finance ministry in parliament, the provision coverage ratio of Indian public sector banks (PSBs) increased from 46 per cent in March 2018 to 89.9 per cent in December 2022. Non-performing assets (NPAs) of PSBs dropped to 5.53 per cent in December 2022 from a peak of 14.6 per cent in March 2018.

All PSBs are in profit with aggregate profit being Rs 66,543 crore in the financial year 2021-22, Minister of State for Finance Bhagwat K Karad informed the parliament.

In the first nine months of 2022-23, aggregate profit of PSBs stood at Rs 70,167 crore.

The Indian equities markets rebounded on Tuesday led by strong buying support in banking and financial stocks.

However, Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities, noted that “the optimism may face hurdles as the recent turmoil in large banks in the US and Europe has shaken investors' sentiment.”

“Gaining buoyancy from a slew of measures to shield the banking sector, global markets witnessed recovery ahead of the US Fed policy announcement,” said Vinod Nair, head of research at Geojit Financial Services.

“The momentum was passed onto domestic equities, which were led by large-cap banks,” Nair added.