State Bank of India’s Economic Research Department, in a research report titled “Ecowrap,” stated that banking regulation in India is more prudent than in the US, and a crisis like Silicon Valley Bank (SVB) could not have occurred in India.
What Happened? Per the research report brought to notice by the Times of India, Indian banks are required to maintain a 100% liquidity coverage ratio for 30 days and one year's net stable funding ratio. The US only requires these norms for banks with a balance sheet size of over $700 billion (₹57,54,263 crore), and SVB did not need full liquidity coverage, which would have provided a cushion during deposit outflows.
The Reserve Bank of India (RBI) has outlined precise asset liability management controls and tools, including the maturity mismatch report (MMR) and interest rate sensitivity monitor (IRSM). The report reveals that keeping an eye on the MMR and IRSM could have detected and prevented potential risks in the bank’s balance sheet, as seen with SVB.
The report adds that in terms of deposit insurance coverage, India outperforms the US. The Indian banking system insures small banks, such as regional rural banks, cooperative banks, and local area banks, up to 83%, 67%, and 76% of their respective deposits, while the US only insures top bank deposits up to 50-55% and small banks for only 30-45% of their deposits.
Resilient showing: The study showed that Indian banks demonstrate resilience, with foreign creditors owing India $104.2 billion (₹8,56,655.66 crore) as an immediate counterparty and $81.5 billion (₹6,70,034.61 crore) as a guarantee. Immediate counterparty basis is a methodology that assigns positions to the primary party to a contract, while guarantor basis is a methodology that assigns positions to a third party who has agreed to assume the debts or obligations of the primary party if they default.
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The World Bank defines foreign claims as the total of local claims from overseas offices and cross-border claims in all currencies.
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