Indian bank deposits better protected than in US: SBI report

Mumbai (Maharashtra) [India], March 20 : Research by SBI said US smaller bank deposits are insured in the range of 30-45 per cent only while in contrast, smaller bank deposits in India such as regional rural banks, cooperative banks, and local area banks are better protected at 82.9 per cent, 66.5 per cent, and 76.4 per cent respectively.
Analysis of insured customer deposits across multiple geographies initiated in the wake of bank runs across developed economies reveal US's top 10 banks deposits are insured in the range of 38.4-66 per cent, according to a research titled, Ecowrap, of the State Bank of India's Economic Research Department.
Another interesting trend that has been observed in the US is that top banks' deposits, on an average, have been insured to the tune of around 50-55 per cent.
The research also said Indian banks were the epitome of resilience. Foreign claims on India are USD 104.2 billion on an immediate counterparty basis, and USD 81.5 billion as a guarantor basis.
Immediate counterparty basis means the methodology whereby positions are allocated to the primary party to a contract whereas guarantor basis meant methodology whereby positions are allocated to a third party that has contracted to assume the debts or obligations of the primary party if that party fails to perform. According to World Bank, foreign claims are defined as the sum of cross-border claims plus foreign offices' local claims in all currencies.
When compared with other major countries, India has the least foreign claims, both as a counterparty basis, and also as a guarantor basis, the report said.
"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 policy rate of 50 bps by 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 ECB in the last 25 years pre- and post -the global financial crisis (GFC) is looking grossly mis-timed.
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 positons, 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, the 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.