Indians’ funds in Swiss banks down 11% to Rs 30k cr on dip in customer deposits

Indians’ funds in Swiss banks down 11% to Rs 30k cr on dip in customer deposits:

According to the annual data released by Switzerland’s central bank, funds held by Indian individuals and firms in Swiss banks experienced an 11 per cent decline in 2022. The aggregate funds of Indian clients in Swiss banks stood at 3.42 billion Swiss francs (approximately Rs 30,000 crore). This decline comes after two consecutive years of growth and follows a peak of 3.83 billion Swiss francs in 2021, which marked a 14-year high.

The decrease in funds held by Indian clients can be primarily attributed to a significant drop of almost 34 per cent in customer deposit accounts. These accounts witnessed a sharp decline from their seven-year high. It’s important to note that the data includes funds parked by Indian individuals and firms in Swiss banks, India-based branches, and other financial institutions.

While the data highlights a decline in funds held by Indian clients in Swiss banks, it’s essential to understand the factors that may have contributed to this decrease. Various factors could influence the movement of funds, including changes in investment preferences, regulatory measures, economic conditions, and global financial trends.

Swiss banks have long been regarded as a preferred destination for individuals and corporations worldwide to park their funds due to the country’s reputation for financial stability, confidentiality, and expertise in wealth management. However, several countries, including India, have been actively working to combat tax evasion, money laundering, and illicit financial flows in recent years. This has led to increased international cooperation and the implementation of stricter regulations to ensure transparency in cross-border financial transactions.

India, in particular, has been taking measures to curb illicit financial activities and promote tax compliance. The government has signed various international agreements and adopted initiatives such as the Automatic Exchange of Information (AEOI) to enhance transparency in financial transactions and detect tax evasion. These efforts may have influenced the movement of funds and contributed to the decline in Swiss bank deposits by Indian clients.

It is worth noting that the data only reflects funds held in Swiss banks and does not provide a complete picture of the overall financial assets of Indian individuals and firms held globally. Individuals and businesses have diverse options for managing their finances, including domestic banks, other international financial centres, and alternative investment avenues.

The decline in funds held by Indian clients in Swiss banks should be viewed in the broader context of ongoing global efforts to promote financial transparency and combat illicit financial activities. The focus is shifting towards a more accountable and regulated financial ecosystem that ensures compliance with international standards and fosters economic growth. As financial regulations continue to evolve, individuals and businesses are expected to explore a range of options to manage their funds in line with regulatory requirements and investment objectives.

The figures reported by Swiss banks to the Swiss National Bank (SNB) represent the total liabilities or amounts due to their Indian clients and do not provide a comprehensive assessment of the alleged black money held by Indians in Switzerland. These figures also exclude funds that Indians or non-resident Indians (NRIs) may have in Swiss banks under the names of entities from other countries.

The total amount of CHF 3,424 million reported by the SNB for 2022 includes different components. Customer deposits accounted for CHF 394 million, a decrease from CHF 602 million at the end of 2021. Funds held through other banks amounted to CHF 1,110 million, down from CHF 1,225 million. Fiduciaries or trusts accounted for CHF 24 million, an increase from CHF 3 million. The largest component, CHF 1,896 million, represented other amounts due to customers in the form of bonds, securities, and other financial instruments, a decrease from CHF 2,002 million.

It’s important to note that these figures reflect the liabilities or amounts owed to Indian clients by Swiss banks and provide insights into the financial relationships between Indian clients and Swiss banks. However, they do not give a detailed breakdown of the nature or origin of the funds. They also do not distinguish between legal and illicit funds or provide information about the tax status of the account holders.

The issue of alleged black money held by Indians in Swiss banks has been a subject of debate and scrutiny for many years. Governments and regulatory authorities worldwide have been working together to combat tax evasion, money laundering, and illicit financial flows. International initiatives and agreements, such as the Automatic Exchange of Information (AEOI) framework, aim to enhance transparency in financial transactions and facilitate the exchange of financial information between countries.

It’s worth noting that the reported figures are based on official data provided by banks to the SNB. The overall quantum of funds held by Indians in Swiss banks or the presence of black money cannot be accurately determined solely based on these figures. Assessing the scale of illicit funds or undisclosed wealth requires comprehensive investigations and cooperation between relevant authorities.

As the global financial landscape evolves and regulations become more stringent, the focus remains on promoting transparency, combating financial crimes, and ensuring compliance with international standards. Efforts by governments and regulatory bodies continue to shape the financial industry, aiming to foster a more accountable and regulated environment.

According to data from the Swiss National Bank (SNB), the total amount of funds held by Indian clients in Swiss banks reached a record high of nearly 6.5 billion Swiss francs in 2006. Since then, it has generally followed a downward trend, with a few exceptions in 2011, 2013, 2017, 2020, and 2021. In 2019, all four components experienced declines, but in 2020, there was a significant drop in customer deposits. However, in 2021, there was an increase across all categories. In 2022, only the fiduciaries segment saw an increase.

The SNB’s data on the “total liabilities” of Swiss banks towards Indian clients encompasses various types of funds held by Indian customers in Swiss banks. This includes deposits from individuals, banks, and enterprises. The data also incorporates information from branches of Swiss banks in India and non-deposit liabilities.

It’s important to note that these figures reflect the overall financial relationship between Indian clients and Swiss banks, including both deposits and other types of liabilities. They provide a broader perspective on the funds held by Indian clients in Swiss banks beyond just customer deposits. However, they do not provide a detailed breakdown of the specific sources or purposes of these funds.

As the global financial landscape evolves and regulations become more stringent, transparency and compliance have become critical priorities for governments and regulatory bodies worldwide. Efforts to combat tax evasion, money laundering, and illicit financial activities continue to shape the banking industry. International initiatives, such as the Common Reporting Standard (CRS) and the AEOI framework, aim to enhance the exchange of financial information between countries and promote greater transparency in cross-border financial transactions.

It’s worth noting that the reported figures from the SNB offer insights into the overall trends in funds held by Indian clients in Swiss banks over time. However, they do not provide a definitive assessment of the nature or origin of these funds, nor do they indicate the presence of black money or undisclosed wealth. Determining the scale of illicit funds or undisclosed assets requires comprehensive investigations and cooperation between relevant authorities.

In contrast to the data provided by the Swiss National Bank (SNB), the ‘locational banking statistics’ from the Bank for International Settlements (BIS) have been considered by Indian and Swiss authorities as a more reliable measure for deposits by Indian individuals in Swiss banks. According to the BIS statistics, there was a decline of over 18 per cent in such funds during 2022, amounting to USD 94.4 million (Rs 781 crore). This follows a decrease of over 8 per cent in 2021 and a significant increase of nearly 39 per cent in 2020.

The BIS figures encompass both deposits and loans of Indian non-bank clients with Swiss-domiciled banks. In 2019, there was an increase of 7 per cent in these funds, following an 11 per cent decline in 2018 and a substantial drop of 44 per cent in 2017. The highest recorded level was over USD 2.3 billion (over Rs 9,000 crore) at the end of 2007.
It’s important to note that the BIS locational banking statistics focus specifically on deposits and loans of Indian non-bank clients in Swiss banks. While these figures provide another perspective on the financial relationship between Indian individuals and Swiss banks, they may not capture the complete picture of all funds held by Indian clients, including deposits from individuals, banks, and enterprises.

Both sets of data, from the SNB and the BIS, offer different angles on the funds held by Indian clients in Swiss banks. The SNB data provides a broader view, including various types of liabilities, while the BIS data focuses specifically on deposits and loans of Indian non-bank clients. It’s essential to consider these figures in their respective contexts and to recognize that they may not fully capture the extent of all funds held by Indian individuals in Swiss banks.

Efforts by global authorities to promote transparency and combat illicit financial activities have led to increased cooperation between countries and improved mechanisms for exchanging financial information. These initiatives aim to ensure that individuals and entities comply with their tax obligations and prevent the misuse of financial systems for illicit purposes.

Swiss authorities have consistently maintained that the assets held by Indian residents in Switzerland should not be considered ‘black money.’ They actively support India in its efforts to combat tax fraud and evasion. To facilitate transparency and cooperation in tax matters, the automatic exchange of information between Switzerland and India has been in place since 2018.

As part of this framework, detailed financial information on all Indian residents with accounts in Swiss financial institutions since 2018 was provided to Indian tax authorities for the first time in September 2019. This exchange of information is now conducted annually, ensuring that Indian tax authorities receive up-to-date and comprehensive data on accounts held by Indian residents in Switzerland.

Switzerland has also actively shared information on accounts held by Indians suspected of engaging in financial wrongdoing, provided that there is prima facie evidence to support the suspicion. This exchange of information has occurred in numerous cases, demonstrating the commitment of Swiss authorities to combating financial irregularities and cooperating with Indian authorities.

It’s important to note that the decline in funds of foreign clients, including institutions, to CHF 1.15 trillion (over Rs 125 lakh crore) in 2022, as reported by the Swiss National Bank, reflects the overall trend for all foreign clients and is not specific to Indian residents alone.

The automatic exchange of information and the cooperation between Swiss and Indian authorities in combating tax evasion and financial misconduct demonstrates a global shift towards greater transparency and accountability in the financial sector. These measures aim to ensure that individuals and institutions fulfil their tax obligations and deter illicit activities.

The collaborative efforts between Switzerland and India, along with other countries, serve to strengthen the global financial system and promote a level playing field for taxpayers worldwide. By exchanging information and cracking down on financial wrongdoings, both countries are working together to foster a more transparent and responsible financial environment.

At the end of 2022, Indian clients accounted for CHF 3.99 billion in Swiss banks, representing a decrease of approximately 15 per cent. This figure includes dues from Indian customers amounting to around CHF 164 million, nearly halving from CHF 323 million at the end of 2021.

The United Kingdom held the highest amount of foreign clients’ money in Swiss banks, with CHF 309 billion, followed by the United States in second place with CHF 133 billion. These were the only two countries with client funds exceeding CHF 100 billion.

The top 10 list also included the West Indies, France, Germany, Hong Kong, Singapore, Luxembourg, Bahamas, and the Netherlands. Other countries in the top 25 included the United Arab Emirates, Guernsey, Cyprus, Italy, Australia, Jersey, Cayman Islands, Russia, Japan, Panama, Spain, Taiwan, Saudi Arabia, China, and Israel.

India was ranked 46th, down from 44th the previous year, ahead of countries like South Korea, Sweden, Argentina, Bahrain, Oman, New Zealand, Mauritius, and Pakistan, which also experienced a significant decline to CHF 427 million (from CHF 712 million). Bangladesh also saw a substantial drop from CHF 871 million to CHF 55 million.

Similar to India, the issue of alleged black money in Swiss banks has been a politically sensitive topic in neighbouring countries as well. Following the release of the annual data in 2021, the Indian government requested details from Swiss authorities regarding the relevant facts and their perspective on the reasons behind the changes in funds held by individuals and entities that year.

The Indian Finance Ministry had previously stated that the figures “do not indicate the quantum of much-debated alleged black money held by Indians in Switzerland. Further, these statistics do not include the money that Indians, NRIs, or others might have in Swiss banks in the names of third-country entities.” The ministry also highlighted several reasons that could have contributed to the increase in deposits that year, including growing business transactions by Indian companies, rising deposits from Swiss bank branches located in India, and an increase in inter-bank transactions between Swiss and Indian banks.