Are Indian Banks Safe?

The fallout of Silicon Valley Bank and Credit Suisse has created enough doubts in investors' mind about the health of banks across the globe. Indian banks are considered safe but it would be interesting to find out if they are investible at the current prices. Yogesh Supekar, while analysing the current situation in the global banking industry, shares an outlook on the banking stocks for Indian investors

- Yogesh Supekar

The word ‘credit’ in Latin means ‘trust’. When the credit market is itself in a turmoil it means that the trust in the credit market is weakening and that is exactly what we have seen in 2023 so far, especially in the more developed economies. The stress in the banking system is clearly indicative of the economic risks. The banking crisis in the US has increased the odds of the economy running into a phase of recession. With the fallout of the Silicon Valley Bank (SVB) and the Signature Bank in the US, the bigger risk this creates is a feeling of distrust amongst the investors and depositors in the systems, which further leads to damaging the banking system in an irrecoverable manner.

In the given context it has become important to assess if the banks are a safe bet from a portfolio perspective. After all the FIIs have dumped IT and banking sector stocks in FY23 even though banks and financials remain the favourites of the FIIs when it comes to sectoral allocation in India. Do we need to worry about our investments in the banking stocks given the negative sentiment surrounding the sector? To take a larger view on investments in the banking sector it is important to understand the idiosyncrasies of the banking failure in the US and that of the Credit Suisse. It is also important to understand the business models of the modern banks to understand if they are vulnerable to the existing volatile business environment.

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