Credit Suisse Is More Relevant To India's Financial System Than SVB: Jefferies

Credit Suisse Group AG is more relevant to India's financial system than Silicon Valley Bank, according to Jefferies, even though it has only one branch in India with a total asset base of less than Rs 20,000 crore.

Foreign banks have a relatively smaller presence in India, with a 6% share in total assets, 4% in loans, and 5% in deposits, the brokerage said. The banks are more active in the derivative markets (forex and interest rates), where they control 50%, the brokerage said in a note on Wednesday.

Shares of Credit Suisse dropped on fears of contagion from the collapse of two U.S. banks after its annual report cited 'material weaknesses' in internal control, according to news agency AFP.

Most of the foreign banks in India are branches of their parent banks, and only a few are wholly owned subsidiaries, Jefferies said. They keep their capital liquid and make similar disclosures in their annual reports as Indian banks, it said.

The top-five foreign banks in India by assets are HSBC Holding Plc., Citi Group Inc—which has now sold its solid consumer business to Axis, Standard Chartered Plc., Deutsche Bank AG, and JPMorgan Chase & Co.

Borrowing in India forms 73% of total liabilities, and 96% of borrowing has a tenure of up to two months, Jefferies said. The deposit base is smaller at Rs 2,800 crore, forming 20% of total liabilities, 70% of which are from subsidiaries, it said. The share of shorter-term liabilities is high, and assets are mostly in liquid G-Secs.

Credit Suisse is present as a branch and has a 1.5% share among foreign banks' assets and 0.1% in sector assets. 70% of assets are in short-term G-Secs and have zero NPLs, according to Jefferies. "Alike foreign banks, their off-balance sheet is seven times the total assets, and they are the 14th largest foreign bank in the system".

"Given the relevance of Credit Suisse to India's banking sector, we see a softer adjustment of the counter-party risks, especially in the derivative market," Jefferies said.

The brokerage expects the RBI to keep a close watch on liquidity, counter-party exposures and intervene as necessary.