Virendra Pandit
New Delhi: After the collapse of three mid-sized US-based banks in the last week—Silicon Valley Bank (SVB), Signature Bank, and Silvergate Bank—global banking circles are worried over the possible spread of the 2008-like contagion worldwide, forcing 11 leading American banks to form a consortium to shield yet another bank from liquidation.
Union Minister of State for Information Technology Rajeev Chandrashekhar said on Thursday that hundreds of Indian startups had more than a billion dollars of their funds in SVB, which collapsed on March 10, and that he had urged the Indian banks and Finance Minister Nirmala Sitharaman to help them out.
Fresh reports suggested that Tata Consultancy Services (TCS) and Infosys also had “exposure” to SVB.
California’s banking regulators shut down SVB on March 10 after a run on the lender, which had US 209 billion in assets at the end of 2022. Subsequently, two more US banks—Silvergate Bank and Signature Bank—were also reported to have collapsed.
Depositors pulled out as much as USD 42 billion from SVB in a single day, rendering it insolvent. The US regulators eventually stepped in to ensure that depositors had access to their funds.
“The issue is, how do we make startups transition to the Indian banking system, rather than depend on the complex cross-border US banking system with all of its uncertainties in the coming month?” Chandrashekhar said in a Twitter spaces chat.
He met over 460 stakeholders this week, including startups affected by SVB’s closing, and said he had passed on their suggestions to Sitharaman.
Indian banks could offer a deposit-backed credit line to startups that had funds in SVB, using those as collateral, Chandrashekhar said, citing one of the suggestions he had passed on to the Finance Minister.
India has one of the world’s biggest startup markets, with many clocking multi-billion-dollar valuations in recent years and getting the backing of foreign investors, who have made bold bets on digital and other tech businesses.
Meanwhile, analysts at J.P. Morgan said on Friday that top Indian IT firms TCS and Infosys have the highest exposure to regional banks in the US that are gripped by financial turmoil.
Regional banks in the US account for 2 to 3 percent of these Indian companies’ revenue, J.P. Morgan said, adding the exposure to the recently collapsed SVB could be 10-20 basis points for TCS, Infosys, and LTIMindtree.
All three companies might need to set aside provisions in the fourth quarter because of their exposure to SVB.
“The collapse of SVB, Signature Bank, and concerns of liquidity across the U.S. and the European Union can further soften technology spends by banks over the short term in a year with slowing growth in bank tech budgets,” J.P. Morgan, which has an “underweight” rating on the sector, said.
India’s IT industry is already facing a challenging macroeconomic environment in its key markets of Europe and the US, where technology spending is contracting amid delays in decision-making on long-term deals as the pandemic-led surge in demand faded.
J.P. Morgan said the banking crisis could delay deal ramp-ups, impacting revenue conversions over the next two quarters, and push back new order closures that could hurt revenue over the next four quarters.
Indian IT firms draw the bulk of their revenue from the banking, financial services, and insurance (BFSI) sector.
Within BFSI, their exposure to the U.S. banks is on average 62 percent and Europe 23 percent, it said.
LTIMindtree this week said it had negligible exposure to U.S. regional banks, including SVB.
Meanwhile, according to reports, 11 major American banks have formed a consortium to shield yet another bank, First Republic Bank, from sinking. Bank of America, Citigroup, and JP Morgan Chase are leading this consortium to deposit USD 30 billion in First Republic Bank to protect it from collapsing.