Ever since the crisis at US-based Silicon Valley Bank (SVB) came out in the public last week and many Indian start-ups also got affected, questions have been raised on whether there could be any impact on Indian banks as well.
According to an analysis by global financial major Jefferies, Indian banks are well placed in terms of quality of deposits and also the possible impact of mark-to-market losses on held-to-maturity book.
“In the backdrop of SVB, we test Indian banks on (1) quality of deposits & (2) impact of MTM loss on HTM book. On funding, >60% of deposits are households’, savings dep. (deposits) are sticker (duration 3-5yrs), people don’t move to G-Secs quickly,” stated the report by Jefferies.
“On assets, loans are 65% of assets & investments 25%. HTM is allowed on GSecs & forms 80% of that & 15% of assets. On 4-5yr duration, impact will be just 6% of capital for Pvt. BKs (private banks) & 15% for PSUs,” it added while highlighting that “Indian banks are well placed”.
In terms of deposits, the analysis further showed that while 63 per cent comes from households that are typically “stickier”, only 22 per cent comes from corporates while government and NRIs accounted for nine per cent and six per cent, respectively.
Further, Indian banks have a much greater dependence on term and savings deposits even as retail deposits formed 55-60 per cent of total deposits for private banks while the share was pegged at 67 per cent for government-owned banks.
Interestingly, the Jefferies has a buy rating on most Indian banks including ICICI Bank, Axis Bank, Kotak Mahindra Bank, IndusInd Bank, Bandhan Bank and State Bank of India.
It also has a buy rating on many non-banking financial companies (NBFCs) like Bajaj Finance, LIC Housing Finance, Piramal Enterprises, Cholamandalam Investment & Finance Company, Aptus Value Housing Finance India and Can Fin Homes among others.
Incidentally, the analysis by Jefferies comes on the back of many experts warning that more banks in the US could face a crisis like SVB.
“More banks will likely fail despite the intervention, but we now have a clear roadmap for how the government will manage them. Bank boards and managements have received a massive wake-up call. Being a director or CEO of a bank that fails is no fun: years of litigation, regulatory investigations, personal liability, potential civil and criminal charges, and enormous reputational damage,” tweeted Bill Ackman, American billionaire investor and CEO of hedge fund management company Pershing Square Capital Management.
The US regulators closed Signature Bank on Sunday, two days after the authorities shut down Silicon Valley Bank. Before being closed, SVB was the 16th largest lender and a major financier of technology start-ups. It had $209 billion in total assets and nearly $175.4 billion in total deposits as of December 2022.