Indian Banks Can Endure Contagion Effect Of Global Turmoil: S&P Analysts have said that Indian banks are now in a better position to withstand stress given their current capital levels and healthy asset quality
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The S&P Global Ratings, on Tuesday, stated that Indian lenders and rated finance companies (NBFCs) are capable of enduring any potential contagion effects emanating from the U.S. banking turmoil and UBS's recent takeover of embattled Swiss lender Credit Suisse given their manageable exposures to their global counterparts, according to a Reuters report.
"Strong funding profiles, a high savings rate, and government support are among the factors that bolster the financial institutions we rate. Also, Indian banks had sufficient buffers to withstand losses on their sizable government securities portfolio due to rising interest rates," the ratings agency said in a statement.
The report also added that, "The secondary impacts are manageable, although the decision to write-off Credit Suisse's additional tier 1 bonds may contribute to a higher cost of capital for banks. Only a significant escalation would lead us to change our view."
Analysts have said that Indian banks are now in a better position to withstand stress given their current capital levels and healthy asset quality, according to previous media reports.
Furthermore, the report said that the support for deposit franchises comes from the banks' wide branch networks, sizable retail customer base, and deposit insurance for small savers of up to INR 5 lakh for deposits with individual banks. Moreover, about 60% of the banking system is government-owned, bolstering the perceived safety of bank deposits.
Stress tests conducted by the central bank and released as part of the Financial Stability Report (FSR) in December have also shown that banks would be able to comply with minimum capital requirements even under adverse scenarios. As per the rating agency findings, only a significant escalation of the current crisis would force it to change its view.