Indian bank deposits better protected than in US: SBI report (2024)

According to a study by the State Bank of India's Economic Research Department titled "Ecowrap," the US's top 10 bank deposits are insured in the range of 38.4-66 per cent. This analysis of insured customer deposits across multiple geographies was undertaken in the wake of bank runs across developed economies.

Another intriguing development in the US is that top banks' deposits have, on average, had between 50% and 55% of their deposits insured.

According to the study, Indian banks exemplify resiliency. Foreign creditors owe India 104.2 billion dollars as an immediate counterparty and 81.5 billion dollars as a guarantee.

Immediate counterparty basis refers to a methodology in which positions are allocated to the primary party to a contract, as opposed to guarantor basis, which refers to a methodology in which positions are allocated to a third party that has agreed to assume the debts or obligations of the primary party in the event of that party's default. The World Bank defines foreign claims as the total of local claims from overseas offices as well as cross-border claims in all currencies.

"Further, our ratio of foreign claims to domestic claims is also least among countries signifying that our banking and financial system is very disciplined and no international balance sheet contagion can start from India. Maturity wise also, International claims on India are the least among major countries," Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, said who authored the report.

The report said the recent rise in the policy rate of 50 bps by the European Central Bank (ECB) could not have been more counter-intuitive, coming amidst the mayhem that sparked a massive sell-off in the pack of banks, including systemically important banks from the European Union (EU) and the United Kingdom (UK), eroding USD 60 billion in a single day on March 15 alone.

The research added, however, if history had any rear-view mirror, the quantum of unsynchronised rate decisions by the ECB in the last 25 years pre-and post -the global financial crisis (GFC) is looking grossly mistimed.

Soumya Kanti Ghosh said, "We feel the fissures of the present shock, after a year of war and three years of the pandemic, may prove to be quite a costly affair for the health of beleaguered European banking system going forward even as ECB continues branding Euro area banking sector as resilient, with strong capital and liquidity positions, as on September 2022, not factoring the rise in borrowing costs and the resultant decline in demand, along with tighter credit standards, all leading to a vortex."

The research also said separately, that short-term borrowing like uninsured deposits by First Republic Bank, of USD 30 billion from a suite of 11 different US-based banks, for an ultra-short-term period of 90 days, is shortsighted if we compare such packages in India in 2008 and 2020 when the consortium of banks or champion banks handheld the ailing banks for a multiyear period.

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Published: 20 Mar 2023, 02:38 PM IST