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Will United States Banking Crisis Extend to Indian Banks?

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Following the collapse of the 2 largest bank in the U.S, Silicon Valley Bank and Signature Bank, the Indian banking sector are worried.

According to the New Delhi report, the banking mutual funds lost about 6% last week following the Signature bank and Silicon Valley bank failure. As a result, the investor’s sentiment in the financial and banking services space is dented.

The collapse of the 2 united States-based banks shocks the entire global financial system. Thus; it lowers sentiments of the Indian banking sector as well. Most especially; as shares were bombarded and dropped to the level of 3-13% in the week of review.

That notwithstanding, it is improbable for the Indian Banks to suffer the same crisis as the United States banks says an expert.

In an interview with CNBC, Shanti Ekambaram who is the president of Kotak Mahindra Ltd, Consumer Banking, says that the Indian banking system has adequate liquidity. Therefore, they are not likely to suffer the same crisis as the U.S banks.

According to Ekambaram’s statement, the Indian banking industry seems strong to the worldwide market volatility. Ekambaram made a statement in her interview that the Indian Banking industry seems highly immune to the latest Europe and U.S market volatility.

There is a structure that the Indian Banking sector has which made it quite different from the Europe and U.S banks explained the expert. As a result, the Indian banks are less vulnerable to similar risks as the U.S and Europe.

Why are Indian Banking Sector Less Volatile?

According to Ekambaram’s explanations, the Indian banks invested largely in government bonds. These bonds are liable to on caps on how much to be withheld to maturity.

This fact together with the fact that majority of the Indian deposits are in retail and the deposit’s duration is relatively short makes the Indian banks unlikely to suffer similar risks viewed in other countries.

Ekambaram further said that, for the last 18-24 months now, Indian banking industry has experience a stable credit growth with the banks sending funds into credit.

Moreover, with the Indian government commitment to spend on capital expenditure, they expect to spur growth as well as maintain a stable sector.

Are the Indian Sector Completely Shielded?

The expert noted that there are certain factors that can affect the Indian banking sector. For instance; factors like liquidity and macros in the banking system.

She states that these factors notwithstanding, the Indian banking sector is still positive. Moreover, the India macro is presently in a good shape and the government’s devotion to capital expenditure is expected to aid growth.

In summary, Ekambaram believes that the Indian banking Industry is more immune to the volatility of the global market and will not be affected by the happening of the European Union and US.

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