Silicon Valley Bank crisis: What impact will the bank's shutdown have on India

The United States-based Silicon Valley Bank was on Friday (local time) shut down by regulators and the move sent global banking shares into turmoil. The Silicon Valley Bank's shut down is being dubbed as biggest banking failure since 2008 financial crisis.

The tech lender was closed down and put under control of the US Federal Deposit Insurance Corporation (FDIC). The FDIC, which is acting as receiver, will liquidate SVB's assets to pay back its customers including depositors and creditors.

What triggered the crisis at SVB Financial Group and Silicon Valley Bank?

The bank's crisis stemmed from its parent company SVB Financial Group's announcement of sale of $21 billion of its securities that were a part of the bank's portfolio. Additionally, it stated that it held a sale of shares amounting to $2.25 billion to shore up its finances.

The bank finally failed after the depositors--who according to a report in Associated Press, are mostly tech worker and venture-capital-backed companies--withdrew their money creating a run on the bank.

SV bank was 16th largest bank in US

The Silicon Valley bank was the 16th largest bank in United States with a holding of $210 billion in assets and was a major financial conduit for ventre-capital-backed firms. These firms were hit hard in the last 18 months as Federal Reserve aggressively hiked interest rates making riskier tech assets less attractive for investment.

Impact on India

The failure of Silicon Valley Bank sent shockwaves through financial markets worldwide. The sell-off of SVB stock and US Market had a spillover effect on Dalal street.

A report in the Economic Times stated that the banking stocks went downhill on Friday because investors were perturbed by the loan repayment defaults as the interest rate is rapidly increasing.

Market experts were quoted saying that SVB crisis will not have significant impact on India or domestic banking system.

The ET report quoted VK Vijayakumar, chief investment strategist at Geojit Financial Services saying that it is US-specific issue and that it won't have an impact on Indian banking stocks but sentiment impact could be negative.

Vijayakumar said that the sharp bank corrections should be used to purchase the top brands in the private sector.