June 1, 2023

S&P Global Ratings said on Tuesday that Indian lenders are able to weather any potential contagion effects from US banking turmoil and UBS’s recent takeover of struggling Swiss lender Credit Suisse given their manageable risks to their global counterparts.

“Strong funding profiles, high savings rates and government support are some of the factors that support the financial institutions we rate,” the rating agency said.

S&P also said that Indian banks have enough reserves to withstand losses on their significant portfolio of government securities due to rising interest rates.

The Reserve Bank of India has raised its repo rate by 250 basis points since May last year.

Analysts say Indian banks are currently in a better position to withstand the stress given their current capital levels and good asset quality.

Stress tests conducted by the central bank and released as part of the Financial Stability Report (FSR) in December also showed that banks would be able to meet minimum capital requirements even under adverse scenarios.

S&P said that only a significant escalation of the current crisis would make it change its mind.

However, the decision to write down additional Credit Suisse Tier 1 bonds to zero following the UBS takeover could result in a higher cost of capital for local banks, S&P said.

(Reporting by Siddhi Nayak; editing by Savio D’Souza)

(Only the title and image of this report may have been remastered by Business Standard staff; the rest of the content is automatically generated from the syndicated feed.)

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