Indian Subprime Exposure Limited - Jalan

The U.S. subprime crisis has led to a welcome tempering of investor exuberance in India, and it has also helped quell worries the economy could overheat, former Reserve Bank of India governor Bimal Jalan told.

Jalan, whose 1997-2003 tenure as head of the central bank included the Asian financial crisis of 1997/98, said huge capital inflows into India could complicate currency and liquidity management, and the economy had to be shielded from sudden large moves in the exchange rate.

Overheating concerns in the economy, paradoxically thanks to the subprime crisis, has quietened and, in fact, cooled substantially to a very large extent, Jalan said in an interview on Thursday.

I see the markets getting more cautious due to the effects of the subprime crisis, he said. In my opinion, that is a good thing. Some moderation in investor exuberance is necessary.

The Indian stock market hit a record high in July, before falling 13 percent as the subprime fears roiled global markets.

It has recovered strongly, rising on nine out of the last 10 days, to close on Thursday just 1.6 percent below its record high.

He said the Indian banks had very limited exposures to foreign loans, which would limit the direct impact of the subprime mortgage sector troubles.

IDBI Capital said in a report that data indicated India''s exposure to U.S. mortgage markets was less than $500,000.

Jalan, now a member of the upper house of parliament, expected the economy to stay strong, but said global market turmoil or political instability were risks.