'India is lucky to have RBI', says veteran fund manager after SVB's debacle

Amid the crisis at US's Silicon Valley Bank, a veteran fund manager has taken a dig at America's system and praised the Reserve Bank of India.

Highlighting the dominancy of debt and credit economy, Gurmeet Chadha, Managing Partner, Chief Investment Officer at Complete Wealth Circle on Twitter wrote, "When your (America) entire system is leveraged, the debt is $32 trillion, credit card debt above $1 trillion, tons of student loan

And you raise rates by 5% and tighten liquidity, you are inviting an accident".

Chadha added that "India is lucky to have the Reserve Bank of India (RBI)".

It must be noted that America's credit card debt is at an all-time high. A record number of US residents are paying more than $1,000 a month on auto loans, and nearly every online store is luring customers in by promising they can “buy now, pay later".

According to a Moody’s Analytics analysis of Equifax data, nearly 25 million people are behind on their credit card, auto loan, or personal loan payments in America.

In the last quarter of 2022, credit card balances increased by $61 billion to $986 billion, a record high, the New York Federal Reserve Bank's report mentioned last month.

The share of credit card users making payments that were at least 30 days late, also known as early delinquencies, rose last to 5.9% last quarter from 5.2% in the prior quarter.

Besides, millions of Americans have student loan debt, amassing to more than $1.6 trillion by end of 2022, the Fed reported.

Last year, the Biden administration announced the federal student loan forgiveness plan, granting up to $20,000 in debt relief.

US Federal Bank has also hiked interest rates eight times since 2022 to combat inflation. However, the current crisis at SVB, which led to the shutting down of the entire bank, is a major shock for the world's largest economy. Nearly half of the US technology and healthcare companies that went public last year after getting early funding from venture capital firms were Silicon Valley Bank customers. At the time of its failure, Silicon Valley Bank, which is based in Santa Clara, California, had $209 billion in total assets. The bank announced plans Thursday to raise up to $1.75 billion in order to strengthen its capital position. That sent investors scurrying and shares plunged 60%.

Silicon Valley Bank was a major financial conduit between the technology sector, startups, and tech workers. It was seen as good business sense to develop a relationship with the bank if a startup founder wanted to find new investors or go public. However, with rising inflation and Fed rates, the bank could not tide over the crisis and collapsed in a day. The development rattled markets around the world with US stocks falling and risk assets taking the strain.