Explained: What is happening at Credit Suisse and how does it impact India?

Credit Suisse News: Before the investors at the global market could recover from the shock of Silicon Valley Bank (SVB) crisis that happened on March 10, 2023, another jolt in the financial market raised serious concerns among investors and bankers. Within a week after the SVB collapse, European bank stocks plunged sharply on March 15, as Credit Suisse tumbled to a historic low.

Credit Suisse — Switzerland's second-largest bank after UBS Group AG — plays an important role in international financial markets with operations across Europe and Asia and a substantial U.S. business.

Credit Suisse shares jumped more than 20 per cent early Thursday after the Swiss National Bank accepted its request for financial assistance up to 50 billion Swiss francs ($54 billion)..

Credit Suisse: What exactly went wrong? Chronology of events

On Tuesday, 14 March, Credit Suisse stated in their 2022 annual report that the bank has identified some “material weakness” in its internal controls over financial reporting at a time when the bank is trying to recover from a string of scandals. According to the bank, the scandals have undermined the confidence of investors and clients. Customer outflows in the fourth quarter rose to more than 110 billion Swiss francs ($120 billion).

The root cause of the Credit Suisse crisis could be traced back to March 2021, when the bank announced that it would close and liquidate several investors funds, worth $10 billion, provided to another financial services company, Greensill Capital. Greensill declared insolvency in March 2021. Immediately after this, investors faced a massive loss close to $3 billion.

Just a year later in February 2022, tensions among the investors amplified as there was a massive leak of over 30,000 of Credit Suisse's clients, which revealed over $100 billion in wealth held by people who had profited from "torture, drug trafficking, money laundering, corruption and other serious crimes," reported The Guardian.

Moreover, another persistent challenge for the bank remained the repeated changes in top leadership since 2019, with the most recent changes coming in July 2022, with the group getting a new CEO.

Credit Suisse case: Impact on India's banking system

Credit Suisse owns more than 200 billion rupees ($2.4 billion) of assets in India, making it the 12th largest offshore lender, according to Jefferies. Loans account for  73 per cent of its total liabilities in the South Asian nation, with the majority of them of a short tenure. Thus, with the sudden plunge in the bank share and its impact in the European market, concerns grew in India too.

However, India's banking sector will likely have a softer impact from the troubles at Credit Suisse, given the Swiss lender's relatively small presence in the country, equity analysts at Jefferies said on Thursday. Although, Jefferies mentioned that the impact of Credit Suisse will be comparatively more relevant to India than SVB crisis.

“There remains no direct and material impact as of now from the Credit Suisse front, but it does have a larger impact from the sentiment point of view. It remains quite crucial how central banks work in order to restore confidence in the economy,” added Kunal Sodhani, Vice President at Shinhan Bank.

Foreign banks contribute to only 6 per cent of banking assets, with the Swiss lender accounting for 1.5 per cent of that share, thus, Jefferies forecasts a "softer impact on banking in India."