Indian banks' large reliance on local deposits cushions them as global peers are facing potential contagion from the woes emanating from Silicon Valley Bank, according to Macquarie Group Ltd.
Amid all the "gloom and doom" in global banks, Indian lenders are distinguished with "hardly any exposure directly or indirectly to SVB," Macquarie analyst Suresh Ganapathy wrote in emailed comments on Monday. The sector has "a domestic deposit funded system with investments in Indian government securities," he wrote.
Financial companies in India outperformed regional peers Monday as Jefferies Financial Group Inc. echoed Macquarie's outlook. The nation's banking sector gauge rose as much as 0.6% before erasing gains, while the MSCI AC Asia Pacific Financials Index dropped as much as 1.3% to add to Friday's 2.2% slump.
In a Friday note, Ganapathy retained his bullish outlook for Indian lenders, expecting a "goldilocks scenario" for the next two years due to strong asset quality.
"Despite concerns of a slowdown in loan growth and margin compression, the earnings upgrade cycle continues for the banking sector," the analyst wrote, raising the sector's earnings growth estimates by 3%-9% for the years through March 2025.
Jefferies also said SVB Financial Group poses "low potential risk" to India, as a subsidiary was sold in 2015 and a rebranded version of that company has "good credit rating and stable liquidity."
Analyst Prakhar Sharma echoed his view on Monday, saying the nation's banks are "well-placed" as more than 60% of deposits are household savings.
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