Silicon Valley Bank collapse: RBI weighs up impact on banks, NBFCs

Seeks details about their exposure

Days after the collapse of Silicon Valley Bank (SVB), the Reserve Bank of India (RBI) has swung into action to take stock of its impact on Indian companies and banks. The regulator has started collecting information on banks and non-banks exposure to the failed Santa Clara-headquartered lender.
 

According to sources, the banking regulator has asked banks to furnish details of their equity exposure and deposits in SVB. In addition, the regulator is also gathering data on similar exposure of Indian non-bank entities.
 

“The regulator is taking stock of the impact on the country’s financial system due to the bank’s failure in the US. Both banks and non-banking companies may have exposure in terms of equity investments or deposits in the failed lender,” informed a source.

There are a few Indian banks with operations in the US, like State Bank of India (SBI), ICICI Bank, Bank of Baroda, and Bank of India.

SBI Chairman Dinesh Khara told Business Standard on Sunday that it has no exposure to SVB. “I don’t think we have any exposure to SVB. That was too small a bank. We have exposure to the bigger banks only, not to small ones,” Khara had said. SBI (California), which is a 100 per cent subsidiary of SBI, has seven branches.
 

California-based SVB, the 16th largest bank in the US, was closed on Friday by the California Department of Financial Protection and Innovation, which later appointed the Federal Deposit Insurance Corporation as its receiver.
 

Bankers are of the view that Indian entities’ exposure to the failed US lender is not significant and not a cause for alarm. Indian banks’ liquidity and capital positions have remained healthy in the past few years.

The RBI’s Financial Stability Report of December 2022 said that macro-level stress tests for credit risk showed that domestic banks would be able to comply with minimum capital requirements, even under severe stress scenarios.

A system-level capital to risk (weighted) assets ratio in September 2023, under baseline, medium, and severe stress scenarios, is projected at 14.9 per cent, 14 per cent, and 13.1 per cent, respectively, the RBI said.

The minimum regulatory requirement for capital adequacy ratio for scheduled commercial banks is 9 per cent. Adding on a countercyclical buffer, the requirement is 11.5 per cent.

However, some Indian technology and start-up companies are likely to be impacted by the SVB failure.

Nazara Technologies (Nazara), a mobile gaming company, said two of its subsidiaries had together more than $7.75 million in balances at the failed bank.

Nazara said its step-down subsidiaries — Kiddopia Inc. and Mediawrkz Inc. — hold cash balances worth $7.75 million (about Rs 64 crore) in SVB.

Kiddopia Inc. is a 100 per cent subsidiary of Paper Boat Apps (owned 51.5 per cent by Nazara).

Mediawrkz Inc. is a 100 per cent subsidiary of Datawrkz Business Solutions (owned 33 per cent by Nazara).

Some Indian banks see the SVB collapse as an opportunity to service the start-up ecosystem.

“We are actively engaging with these start-ups to help them park their funds in the Gujarat International Finance Tec-City branch of Axis Bank. It also opens the door to further business engagements with these entities in the future,” said Ganesh Sankaran, group executive and head-wholesale banking coverage group, Axis Bank.