Indian banking system better positioned amid turmoil in US: Crisil

New Delhi [India], May 11 : Indian banking system is better positioned to tackle rising interest rates and the impact of the ongoing US banking turmoil on Indian lending conditions is expected to be limited, according to Crisil.

One of the most prominent lenders in the world of technology startups, Silicon Valley Bank, which was struggling, first collapsed on March 10, after a run on the bank by the depositors. Its closure led to a contagion effect and the subsequent shutting down of other banks, including Signature Bank and First Republic Bank. The collapse apparently was triggered by the consistent monetary policy tightening.

The collapse of a few regional banks in the US, which started with Silicon Valley Bank, has sent ripples across the global banking industry and posed fears of a contagion effect across economies.

Against that backdrop, Crisil, in a report, said India looks better placed to weather emerging global financial risks.

"Financial markets are watching anxiously as the effects of rate hikes by the United States (US) Federal Reserve (Fed) unravel."

Over the past 15 months, the US Fed has hiked its policy rate by 500 basis points (bps), the fastest pace of hikes since 1980, to 5.00-5.25 per cent in its fight against above-tolerable inflation. Raising interest rates typically help in cooling demand in the economy and thus helps in managing inflation.

"The sharp rise, after a decade of record low interest rates, has already tested segments such as the tech sector, and small regional banks in the US."

Further, on India's external funding requirements, India's dependence on such funding is expected to reduce this fiscal - 2023-24.

"India's key external liability - current account deficit (CAD) - will likely be pared this fiscal on lower crude oil prices. This, coupled with the Reserve Bank of India's adequate forex reserves and India's good growth prospects, should cushion the impact of a global spillover on overall macros," Crisil said.