Indian Banks Are Epitome Of Resilience: SBI Report
Amid the Silicon Valley Bank (SVB) crisis, the State Bank of India’s (SBI's) economic research department in a report said that Indian banks are the epitome of resilience.
The report stated that foreign claims on India are USD 104.2 billion on an immediate counterparty basis, and USD 81.5 billion on a guarantor basis.
When compared with other major countries, India has the least foreign claims, both as a counterparty basis and also as a guarantor basis.
Further, the report added, "Our ratio of foreign claims to domestic claims is also the least among countries signifying that our banking and financial system is very disciplined and no international balance sheet contagion can start from India."
Notably, maturity-wise also, International claims on India are the least among major countries.
It also added that the recent rise in the policy rate of 50 bps by the European Central Bank (ECB), a not-so-conspicuous response to unabating prices print across 20-member nations, could not have been more counter-intuitive, coming amidst the mayhem that sparked a massive sell-off in the pack of banks, including Systemically Important Banks (SIBs) from EU and UK, eroding USD 60 billion in a single day on March 15 alone.
"However, if history had any rear-view mirror, the quantum of unsynchronised rate decisions by ECB in the last 25 years pre and post the GFC is looking grossly mistimed. We hope the forthcoming decision of the Fed on March 22nd should avoid such rampant use of rearview mirrors," it stated.
The bank in the report said that the fissures of the present shock, after a year of war and three years of the pandemic, may prove to be quite a costly affair for the health of the beleaguered European banking system going forward even as ECB continues branding Euro area banking sector as resilient, with strong capital and liquidity positions (as on September 2022) not factoring the rise in borrowing costs and the resultant decline in demand, along with tighter credit standards, all leading to a vortex.
While talking about central banks, it mentioned that they can not be alpha-centric, but have to consider systemic beta more in their policy experiments/ responses.
"We take a cue from former RBI governor Y V Reddy; many central banks in the developed world focus only on containing inflation, and not maintaining the stability of the financial system. The balance should tilt towards systemic stability," it added.
Analysis of insured customer deposits across multiple geographies initiated in the wake of bank runs across developed economies reveal USA’s top 10 bank deposits are insured in the range of 38.4 per cent to 66 per cent.
Another interesting trend that has been observed in the USA is that top bank deposits, on average, have been insured to the tune of around 50 to 55 per cent, while their Smaller Bank deposits are insured in the range of 30- to 45 per cent only.
In contrast, smaller bank deposits in India such as regional rural banks, co-operative banks and local area banks are better protected at 82.9 per cent, 66.5 per cent, and 76.4 per cent respectively.
For cross-country deposit Insurance (DI) coverage and per capita income, the ratio of DI cover and per capita income is 2.53 for India, one of the highest. It may be noted that the Indian government has notified revised, incremental deposit insurance in 2020, after 27 years.
Separately, the short-term borrowing like uninsured deposits by First Republic Bank (FRB), of USD 30 billion from a suite of 11 different US-based banks, for an ultra-short-term period of 90 days, is shortsighted if we compare such packages in India in 2008 and 2020 when the consortium of banks or champion banks handheld the ailing banks for a multiyear period.
Meanwhile, the report also finds the US ‘investment’ pattern inconsistent and non-secular with asset sizes of participating banks.
