The risks of contagion are rising in the Indian financial sector and any failure of a large shadow lender could lead to a “solvency shock” to banks, S&P Global Ratings said yesterday.
India’s shadow lenders get a substantial part of their funding from banks, and the weaker ones have seen a sharp rise in their borrowing costs and a big drop in their equity values, the ratings firm said in a report.
That could have knock-on effects on India’s banks, especially if they are perceived to have governance issues.
“The credit profile of a bank could deteriorate sharply due to outsized exposure to weak entities, huge market or operational losses, or significant deposit withdrawals if the depositors lost confidence in the bank,” the S&P analysts led by Geeta Chugh wrote. “A governance deficit could also quickly turn to a trust deficit, hurting the stability of a bank.”
India’s shadow banking crisis erupted last year when Infrastructure Leasing & Financial Services Ltd defaulted on a series of debt obligations.
Since then, banks and mutual funds have turned cautious on lending to the troubled sector, leaving several other shadow lenders struggling to stay afloat.
If an Indian bank got into trouble, “the contagion could spread to other banks perceived to be struggling with the same problems as the failing bank,” S&P said.
However, it said the government would likely intervene to support systemically important institutions that get into trouble.
The risk of a small to mid-sized bank failing is limited, but the contagion impact of any such failure would be much higher than for a finance company, it said.
“Typically, we expect the government will only intervene for large and mid-sized banks,” S&P said. “But when paranoia is high and the contagion risks are pronounced, they may extend support to smaller banks too.”
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to