Does the Silicon Valley Bank collapse affect India? RBI analyses the impact on the Indian financial sector

Effect of the Silicon Valley Bank collapse on the Indian financial sector

Silicon Valley Bank fall on the Indian Financial Sector

The fall of the Silicon Valley Bank was unexpected, to say the least. It has sent the US start-up ecosystem into a tizzy as more than 10,000 small businesses maintained their account with the bank. A Y Combinator report stated that the collapse might affect 1 lakh jobs as employers might not be able to pay their employees post the collapse.

As the USA is reeling under the effect of the fall, the Reserve Bank of India (RBI) and experts back home are analyzing the collapse’s effect on the Indian financial sector. Here’s what they think –

  • Effect on the Indian startup sector

It is believed that the fall of the bank might not hit the Indian startup space considerably. Only a few firms might be affected, and the ‘contagion effect’ of the fall might not reach India in the near future.

  • Impact on the INR

As the US economy suffers, foreign capital investment in India might increase, which would impact the Indian currency. The finance ministry stated that they are being careful and keeping a watch on the Indian financial sector to see if the fallout causes any effects in the Indian context.

  • Impact on the stock market and mutual funds

There might be a short-term impact on the equity market following the weak global sentiments. However, the volatility is expected to remain over the short term and fizzle out as time passes by.

However, with short-term volatility in the stock market, equity mutual funds might be impacted in the short run.

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  • Impact on the banking sector

Though RBI is assessing the exposure of Indian banks and NBFCs to Silicon Valley Bank, it is expected that the banking sector would not be impacted considerably as it is strong and well-insulated. The repo rate hikes by RBI in the past have increased interest rates to the pre-COVID level.

  • Systematic issues

Experts assert that there would be no systematic issues in the Indian financial sector even though the collapse has wreaked havoc among other countries.

What should investors do?

Investors have nothing to fear with the recent Silicon Valley Bank collapse. Their equity investments might suffer short-term volatility, but if they have a long-term perspective, the volatility will smoothen out.

For depositors and debt investors, too, there are no significant concerns since the Indian banking and financial sector is equipped to deal with the impact of the collapse. Moreover, the collapse is more localized in nature, sparing Indian entities from its ill effects.

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