SVB collapse. No serious implication for Indian financial system due to Silicon Valley Bank failure, says Government

The Government does not see any ‘serious’ impact on the overall Indian financial system due to the breakdown of Silicon Valley Bank (SVB). However, it does acknowledge that stock market and start-up ecosystem may face some heat.

“We do not see any serious implication on our financial system due to development in the US,” a senior Government official told businessline. While he did not explain it further, two reasons could be attributed for this deduction – the first is that there is a much-improved regulatory mechanism for banks and financial system in India and the second is the unique business model of the said bank that was less dependent on retail deposits than a traditional bank.

Also read: Lehman moment? Trading in First Republic, Signature Bank, other regional banks halted after SVB collapse

California-based Silicon Valley Bank (SVB), the 16th largest bank in the United States, was closed on March 10 by the Financial Protection and Innovation, which later appointed the Federal Deposit Insurance Corporation (FDIC) as its receiver. The FDIC, in a statement, said as of December 31, 2022, the Silicon Valley Bank had approximately $209 billion in total assets and about $175.4 billion in total deposits. At the time of closing on March 10, the amounts of deposits in excess of the insurance limits were undetermined. Start-up-focused lender, SVB Financial Group, has become the largest bank to fail since the 2008 financial crisis.

Meanwhile, the official, quoted above, mentioned that SVB development combined with the decision from the next Federal Reserve meeting will impact the sentiments in the stock market. “Aggressive rate hike by Federal Reserve being seen as a key reason for SVB problem. So, it would be important to see what is the next move of the Federal Reserve,” he said. One of eight regularly scheduled meetings in a calendar year of the Federal Open Market Committee (FOMC) is to take place on March 21-22 with the summary of Economic Projections.

Also read: Union Minister Rajeev Chandrasekhar to meet Indian start-ups over impact of SVB collapse 

The official said that since the move by the Federal Reserve impacts yield on the bond, it impacts the sentiments in the stock market, which is already in a bull phase. On Friday, March 10, Sensex and Nifty slipped more than 1 per cent due to heavy selling in IT, financial, and oil stocks in line with a weak trend in the global markets.

The official also felt that Indian start-ups may face the heat as many analysts feel that there could be difficulty in making various kinds of payments. It is said that as almost every third start-up in Silicon Valley is founded by Indian-Americans, there is apprehension that many of these founders would be impacted coming days in terms of even making basic payments and giving paychecks to their employees.

Also read: SVB shutdown sends shockwaves through Silicon Valley as CEOs race to make payroll

Over the past several years, SVB has been one of the most preferred choices of banking for start-ups and the tech industry in Silicon Valley, mainly because of its understanding of the industry and flexibility in many aspects suiting the start-up ecosystem. At the same time, a large number of Indian start-ups, which do not have even an employee or an office in the US, had opened up their accounts in SVB as it let them do so without much regulatory questions and with a customer-friendly approach.

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