Silicon Valley Bank ‘contagion’ may leave India unscathed, say Finance Ministry officials

The failure of the U.S.-based Silicon Valley Bank may only hit some Indian tech start-ups and IT firms for now, while any broader “contagion” effects that may arise will neither reach Indian shores in a hurry nor are they likely to trigger “systemic risks”, according to top Finance Ministry officials.

However, the Centre is cognisant of the fact that the key underlying trigger for the bank’s woes — rapidly rising U.S. interest rates that have rendered past government bond holdings “underwater”, or loss-making securities — could impinge on the operational health of other financial institutions as well.

If these troubles spread, a resultant flight to safety among global investors could hit capital flows into emerging markets such as India and impact the rupee, said a Ministry official tracking developments.

‘Keeping close tabs’

“We don’t know if it will rain, but we will keep an umbrella handy,” the official said, signalling that the government and financial sector regulators are keeping close tabs on the situation and the likely impact on the Indian economy.“At this point, it is not yet clear if there will be ripple or contagion effects on more banks in the U.S. following this bank’s woes. So we don’t expect any major effects to spill over on our economy for a while… There may only be some impact on individual start-ups and tech companies who get some funding from there,” another official said.

The official quoted earlier also asserted that there should be no systemic issues from the bank’s troubles for India. “It may affect specific companies that have investments from SVB or IT firms that have deposited some of their US operations’ income there.”

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