The headquarters of Swiss bank Credit Suisse in Zurich, Switzerland. The lender said on Thursday that it will move to shore up its finances, borrowing up to $54 billion from the central bank after its shares plunged. AP
When California’s Silicon Valley Bank collapsed last week, experts said that this is not going to be like the 2008 financial crisis. Then, New York’s Signature Bank fell and now the leading global investment bank Credit Suisse is in trouble. It might be not as bad as 2008 but the banking world is in panic.
What happened at Credit Suisse?
It started in the United States and then spread to Europe. On Wednesday, shares in the globally connected Swiss bank plunged and dragged down other major European lenders.
At one point, Credit Suisse shares lost more than a quarter of their value, hitting a record low after the bank’s biggest shareholder — the Saudi National Bank — told news outlets that it would not put more money into the Swiss lender, which was beset by problems long before the US banks collapsed, reports The Associated Press.
The turmoil prompted an automatic pause in trading of Credit Suisse shares on the Swiss market and sent shares of other European banks tumbling, some by double digits. That fanned new fears about the health of financial institutions following the recent collapse of Silicon Valley Bank and Signature Bank.
Also read: Credit Suisse Troubles: What’s happening at the Swiss bank and how has it renewed banking crisis fears?
Why there is less panic today?
Before things could get worse, Switzerland’s central bank stepped in. Late Wednesday, it said that it would support Credit Suisse if needed.
Credit Suisse then said early Thursday that it is taking measures to shore up its finances, including exercising an option to borrow up to 50 billion francs ($53.7 billion) from the central bank. “This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the bank said.
This has calmed things down a little but there is still an underlying fear.
Does Credit Suisse have an Indian presence?
Yes. Credit Suisse was established in India in 1997 and has offices in Mumbai, Pune and Gurgaon, with vendor offices in Bangalore, Hyderabad and Kolkata. According to the bank, “the second-largest footprint for Credit Suisse outside of Switzerland” and is “an important recruitment centre”, according to The Indian Express. It is India’s 12th-largest foreign bank.
The fate of the Swiss lender is of greater importance to the Indian banking sector than the collapse of Silicon Valley Bank, equity analysts at Jefferies said on Thursday.
Also read: Silicon Valley Bank collapse: What happens to customers? Are their deposits secure?
Credit Suisse has a 1.5 per cent share among foreign banks’ assets in India and a “small” 0.1 per cent share of overall banking assets in the country, Jefferies estimated. It has only one branch in India and total assets of over 200 billion rupees ($2.42 billion), it said, according to a Reuters report.
What will be the impact on India?
Given the relevance of Credit Suisse to India’s banking sector, analysts see softer adjustments in the assessment of counter-party risks, especially in the derivative market. “We expect RBI to keep a close watch on liquidity issues, and counterparty exposures and intervene as necessary. This may also lead to institutional deposits moving more towards larger/ quality banks,” said Jefferies analysts Prakhar Sharma and Vinayak Agarwal, according to a report in The Economic Times.
The bank has a “major presence in India’s derivatives market” and hence experts are watching for any liquidity issues or counter-party risks that may result from the fallout.
Foreign banks have a relatively smaller presence in India with four to six per cent of assets, but a large 50 per cent share of off-balance sheet liabilities. Loans form 73 per cent of its total liabilities in India with the majority of them of short tenure, the note by Jefferies said, according to a Bloomberg report.
Other experts say that the impact on India will not be severe. According to Devina Mehra, chairperson and chief investment strategist, First Global, a financial services firm, there will be no direct impact on India.
“The global impact on India is not very direct. There is a genuine fear of recession in the US. Inflation will be an issue shortly,” Punita Kumar Sinha, managing partner, Pacific Paradigm Advisors, an investment firm, told ET NOW.
In fact, Uday Kotak, the billionaire banker and managing director of Kotak Mahindra Bank, said that even as the global turmoil continues in financial markets, the macro factors are turning better for India. “Current account deficit looks below 2.5% Fy 23, and going below 2% in Fy 24. Lower oil helps. If we walk our talk and navigate well, India can stand out in this turbulence,” he tweeted.
With inputs from agencies
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