S&P: Indian banks can withstand the banking crisis' effects

22 Mar 2023 , 08:49 AM

Given their manageable exposures to their international counterparts, Indian lenders are capable of withstanding any potential contagion effects resulting from the U.S. banking crisis and UBS’s recent acquisition of troubled Swiss lender Credit Suisse, according to S&P Global Ratings on Tuesday.

The rating agency noted that the financial institutions it rates have ‘strong funding characteristics, a high savings rate, and government assistance,’ among other things.

Moreover, S&P stated that Indian banks had enough reserves to absorb losses on their sizeable holdings of government securities due to higher interest rates.

Since May of last year, the Reserve Bank of India has raised the policy repo rate by 250 basis points.

Experts have stated that with their present capital levels and good asset quality, Indian banks are now better able to resist stress.

The Financial Stability Report (FSR), which was released in December and included the results of stress tests carried out by the central bank, also demonstrated that banks would be able to meet minimum capital requirements despite bad circumstances.

Only a dramatic worsening of the current situation, according to S&P, would persuade it to alter its position.

S&P warned that the move to write off all of Credit Suisse’s additional tier-1 notes to zero following the lender’s acquisition by UBS would raise the cost of capital for domestic banks.

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