Bankers in the US are in a huddle, but for their Indian counterparts it was a weekend as usual. With the regulatory flexibility being handed out last year to rebalance the investment books, stringent lending practices in place and no major asset quality shocks envisaged in the near-term, bankers aren’t perturbed of a major second order hit from the Silicon Value Bank (SVB) crisis.
Pointing out that SVB’s fallout is more an asset liability management (ALM) mismatch, bankers say the liabilities management framework in India is one of the strongest. In fact, experts point out that while India has had its fair share of banking system collapses, they were due to bad lending practices and not because of ALM mismatch. “This is the major difference between SVB and any of the bank failures we have seen in India and that is why even as rising interest rates could pose threat to similar regional banks in the US, it’s not so much a risk for Indian banks,” said CEO of a private bank.
reserve ratio norms
The Reserve Bank of India requires banks to set aside cash reserve ratio (CRR) and statutory liquidity ratio (SLR). At present, 23 per cent of reserves under SLR can be classified as HTM and invested in government securities to mitigate the risk of rising interest rates.
“We have very strong reserve ratio requirements. In times like now, this is a blessing in disguise for the banking system,” said a public sector bank CEO. “We don’t have glamorous products like mortgage-backed securities. What we have are plain vanilla products and therefore the opportunity for us (banks) to make these investment calls doesn’t even arise. Hence, by design and default we will not be exposed to these kinds of fallouts.”
Apart from SLR- and CRR-related restrictions, Indian banks have curbs on funding for acquisition of shares and the banking regulator has also been quite vigilant about banks taking exposure to start-ups — either as debt or as investments.
However, just to be on the safe side and rule out any unforeseen incidents hit the books, banks are likely to review their investments in start-ups and loans handed out to them. “We will review our positions and if required, the likely impact of these exposures will be factored in our upcoming March FY23 financials,” said another private bank CEO. From 2017-22, most private banks were active in taking up to 10 per cent stake in start-up, especially technology and fintech companies.