But the figure from Switzerland's central bank may be a gross understatement of wealth

It's official now. Indians hold about $2.5 billion (more than Rs.11,000 crore) in Swiss banks, but this figure from Switzerland's central bank may be a gross understatement of the total wealth directly and indirectly held there by Indian entities.

The ever-growing judicial scrutiny of and political outcry over the alleged stashing of black money in Swiss banks also seem to be forcing Indian entities to move their monies to other safe havens such as the Middle East, Singapore and the Mauritius. Some half-a-billion dollars have been moved out in the past three years, according to the central bank's figures.

In the first-ever disclosure of money held in various Swiss banks by Indians, the Swiss National Bank (SNB) said such deposits amounted to 1.945 billion Swiss francs ($2.5 billion) at the end of 2010.

Giving a break-up, Walter Meier, spokesperson for the SNB president, said the sum included $2.1 billion in savings and deposits by Indian individuals, financial institutions and corporates. The remaining $400 million was of fiduciaries, largely operating for private individuals from India.

Asked about the identities of these funds, Mr. Meier said the bank had no further information. He said two of the largest Swiss banks, UBS and Credit Suisse, accounted for a vast majority of the deposits of the Indian entities. Experts say the fiduciaries are essentially wealth fund managers who hold the money of Indian private holders and families in the so-called numbered accounts. A private banker, speaking on condition of anonymity, said the actual deposits by Indians could be as high as $15 billion to $20 billion, but rubbished the figure of $1.5 trillion that was reported from time to time. “I would argue that both the Swiss central bank's estimate of $2.5 billion as deposits of Indians and the Indian media stories of $1.5 trillion of Indian private deposits are incorrect and somewhat outrageous,” he said. “From my involvement with banks, I would place the Indian deposits anywhere between $15 billion and $20 billion.”

He said there was a “perceptible flight of funds” of Indian holders from Swiss banks to those in Singapore and Dubai, which are now the two main centres for Indian funds from undeclared sources.

As per the SNB's figures, the Indian deposits in Swiss banks have come down in the past three years by $500 million (Rs.2,250 crore). The figures show the total money deposited by Indians, both individuals and companies, in Switzerland-based banks stood at $2.5 billion at the end of 2010, down from about $2.7 billion in 2009 and $3 billion in 2008.

Flight of money

While the bank did not reveal the reasons for the flight of money, officials at regulatory agencies in India fear that Indians might move their funds to safer locations such as Mauritius, Dubai and some places in the Middle East. There has also been talk of Singapore being one such place. Sources have said foreign capital-friendly regulations in places such as Mauritius and Dubai were possibly being exploited by those seeking to move their funds away from Swiss banks, which have come under strict scrutiny of late.

Till the latest disclosure, the SNB and the Swiss Bankers' Association, the apex body of banks in that country, have been maintaining that they do not disclose country-specific data for funds deposited with them. Such a level of secrecy around Swiss banks has resulted, from time to time, in speculation on the money Indians stashed away in those banks, some time the figure reaching $1.5 trillion.

The issue of black money, including that stashed away in Swiss banks, has been a matter of intense political debate for many years in India, while the courts have widened their scrutiny in recent months. Recently, the Supreme Court constituted a Special Investigation Team to probe the matter, criticising the government for not taking required steps.

At the same time, global pressure has been mounting on Switzerland to ask its banks to share information about their clients with foreign governments. India is also revising its bilateral treaty with Switzerland to help it get more information about the Swiss bank accounts of Indians.

It is being suspected that Indians having illicit wealth in Swiss banks may move their funds in fear of being exposed. At the same time, even those having legitimate funds in Swiss banks may move them away owing to the growing negativity attached to them.

The sources said several Swiss financial institutions had set up arms in locations such as Mauritius for their foreign institutional investor, private equity and venture capital investment activities in India, and these might be used for routing of funds.

India's top regulators, the SEBI and the RBI, have stepped up their vigil on Indian entities routing their funds from the secretly held Swiss bank accounts to India through Dubai and other locations. Giving rise to the suspicion of funds moving to other locations, reports have suggested a spurt in deposits made in banks of the Middle East.

It is feared that the money might be routed back to India, either to the stock market through FIIs or even through the FDI route.

The sectors suspected to be vulnerable to such funds could be real estate, agriculture and infrastructure, which are among the ‘sunrise' segments of the Indian economy having large-scale fund requirements.