Credit Suisse's crisis is more relevant to India: Know how
The global financial system is going through a tough time. On the one hand, we have Silicon Valley Bank and on the other, we have Credit Suisse. Which one do you think is relevant to India and our economic conditions? According to investment banking and financial service company Jefferies, India should be more concerned about the crisis at the Swiss lender.
Why does this story matter?
- Credit Suisse, the second-largest bank in Switzerland, saw its shares slump by as much as 30% on Wednesday after its largest shareholder ruled out further financial assistance.
- This sent shockwaves through the global financial market, including India. Many fear that another bank collapse would lead to a contagion.
- Credit Suisse is the first major global bank to be given an emergency lifeline since 2008.
Credit Suisse has assets worth Rs. 20,000 crore in India
Credit Suisse has an asset base of around Rs. 20,000 crore in India. Therefore, it is "more relevant to the Indian financial system than Silicon Valley Bank," Jefferies said in a note. The bank has a 1.5% share of foreign banks' assets in India. In the overall banking assets, its share is a minuscule 0.1%. The bank has only one branch in the country.
Jefferies expects RBI to step in when necessary
Most of Credit Suisse's assets in India are held in the form of government securities. Per Jefferies, the lender's off-balance sheet items are seven times its total assets. "They are the 14th largest foreign bank in the system," the note reads. Jefferies expects RBI to closely monitor "liquidity issues, and counter-party exposures, and intervene as necessary."
What will be the impact of Credit Suisse's collapse?
Based on Jefferies' estimate of the lender's assets, if the crisis at Credit Suisse worsens, it will have a muted impact on the Indian financial system. However, it should be kept in mind that foreign banks are very active in derivative markets, foreign exchange, and interest rates. Therefore, the impact could be worse than what we imagine.
Credit Suisse has secured a lifeline from Swiss National Bank
Meanwhile, Credit Suisse has secured $54 billion from the Swiss National Bank to shore up investor confidence. Following the announcement, the bank's shares closed nearly 17% up from Wednesday's rout. Swiss authorities have assured that Credit Suisse met "the capital and liquidity requirements imposed on systemically important banks."
