How will the Silicon Valley Bank crash affect Indian Banks and Markets?

Global contagion brought on by Silicon Valley Bank’s demise has various short- and long-term effects on market sentiment. The Indian equity markets, however, are not anticipated to be affected because the Indian banking sector is more protected and controlled.

As a lender to some of the greatest names in the IT industry, Silicon Valley Bank became the biggest bank to fail since the financial crisis of 2008 on Friday. As a result of the action, the Federal Deposit Insurance Corporation now controls almost $175 billion in client deposits. Here is what we currently know about this unfolding story.

Less than two days after Silicon Valley Bank urged customers not to withdraw money out of fear that it was running low on cash, the California Department of Financial Protection and Innovation closed the bank. The regulator chose the Federal Deposit Insurance Corp. to serve as the receiver. To hold the deposits and other assets of the bankrupt bank, the FDIC established a new institution, the National Bank of Santa Clara.

In a press release, the agency stated that the new organisation would begin operations on Monday morning and that cheques written by the previous bank would continue to be honoured.

According to experts, the Indian banking sector is unlikely to see any significant spillover consequences from the Silicon Valley Bank failure, which is beginning to impact other countries. There will be some effect on the market’s mood, though. Kranthi Bathini, an Equity strategist at WealthMills Securities, said that the collapse would not adversely impact the Indian banking system as it is more insulated and regulated.

As far as the markets are concerned, there will be some short- to medium-term effects on the market’s sentiment due to the worldwide nature of the contagion. Nonetheless, according to Bathini, it won’t have a long-term impact on Indian equities markets.

Bhavesh Shah, Managing Director of Consumer and Healthcare Banking at Equirus, claimed that the Indian banking sector has intrinsic capabilities and won’t be significantly affected by Silicon Valley Bank’s problems. Nevertheless, since the attitudes are being imported into India and there is concern that this could trigger a financial catastrophe, there would be an effect on the stock market. The startup ecosystem would also be affected, which could, at least initially, result in further funding restrictions.

The SVB, which specialises in technology startups, saw its most dramatic failure on Friday. Uday Kotak, the CEO of Kotak Mahindra Bank, had previously stated that rising interest rates would inevitably affect weak institutions. He noted that an accident was waiting to happen somewhere when interest rates increased by 500 basis points from zero in a year.

According to sources, the UK government is working quickly to limit the harm caused by the SVB collapse. In response to the instability surrounding the UK branch of Silicon Valley Bank, British Finance Minister Jeremy Hunt stated on Sunday that he was working with Prime Minister Rishi Sunak and Governor of the Bank of England Andrew Bailey to “prevent or mitigate damage,” according to Reuters.

According to the article, the heads of more than 250 UK tech companies signed a letter to Hunt on Saturday asking for government assistance.

Similarly, according to the experts, the SVB collapse may have made Chinese stock investors more uneasy. As China established a modest goal for economic growth this year of roughly 5%, crushed hopes for a significant stimulus, the CSI300 Index in China dropped by 4%, while the Hang Seng in Hong Kong sank by 6%.