credit suisse: RBI keeps close watch on Credit Suisse crisis

The Reserve Bank of India (RBI) is monitoring developments related to Credit Suisse, though the Swiss lender’s limited size and scope in the country means that any major impact is unlikely, said people familiar with the matter. Local bond traders said the risk of contagion is negligible. Bankers said Credit Suisse India will have enough capital.

The RBI didn’t respond to queries.

Domestic banks and money market traders have tightened their belts and cautioned against any fresh counterparty exposure against the lender. It doesn’t have a significant presence in India, and new exposure is totally ruled out as banks are in wait-and-watch mode, said the people cited above. With a single branch in India, Credit Suisse has a 1.5% share among foreign banks in India. Its share of banking assets is at 0.1%. About 70% of the bank’s assets in India are in short-term government securities. “Banks in India have already downgraded Credit Suisse in their internal ratings so fresh trading positions with them is now unlikely,” said the chief government bond trader at a large private sector bank.

‘Banks have tightened risk profile’
“All banks have tightened their risk profile so no one will create a new exposure. Though the fact is that the bank was mostly into trade finance and derivative-linked exposure and the possibility of contagion spreading is almost zero,” the person said.

In a report on Thursday, US-based brokerage Jefferies said that though Credit Suisse in India has funded 60% of assets from borrowings, it’s a small part of the Indian banking sector with 0.1% share of total assets. The brokerage estimates Credit Suisse’s Indian assets at about ₹20,000 crore.

“Given the relevance of Credit Suisse to India’s banking sector, we see softer adjustments in assessment of counterparty risks, especially in the derivative market,” the brokerage said. “We expect RBI to keep close watch on liquidity issues, counterparty exposures and intervene as necessary. This may also lead to institutional deposits moving more towards larger/ quality banks.” Though the bank’s off-balance sheet exposure is seven times that of its assets, its small size will keep risk in check.”We watch out for liquidity issues and any rub-off on counter-party risk assessment (esp. in derivatives) and deposit market may move towards larger/ quality banks,” Jefferies said.

The Swiss central bank’s $54 billion lifeline to the bank has calmed investors and the banking system. The announcement was made on Thursday after a continuous fall in the bank’s shares had raised concerns about its collapse. The shares have since regained some of their value.

Credit Suisse, Switzerland’s second largest bank, is the first major global bank to be thrown an emergency lifeline since the 2008 financial crisis.

“The bank was mainly doing some structured finance, high-yielding financing and also loans against shares, which is a very niche area in Indian banking,” said a senior executive at a UK-based bank. “They have enough capital in India, though at this point in time no bank would want to take a counterparty position with it. It will all be in a wait-and-watch mode.”

Bankers said the regulatory response to such crises has been templated since the Lehman collapse and there is almost no possibility of a systemic risk.