MUMBAI: The Reserve Bank of India has stepped up its vigil on foreign banks operating in the country following the subprime crisis, which has led to many banks writing down loans worth billions of dollars.
The RBI executive director Anand Sinha indicated this to the media on the sidelines of a seminar here on Friday. India’s top policymakers had said in the past month that the spillover effects of the subprime crisis to the country are quite low. However, RBI governor YV Reddy said the unusual developments in the West indicates the heightened uncertainties, which can pose a challenge for the proper conduct of monetary policy, especially for emerging market economies.
According to Mr Sinha, India has still not witnessed a single financial crisis, which shows the stability of the local banking system. But several top notch banks in the US and Europe ran into problems owing to their exposure to loans to borrowers with poor credit history. Till date, banks have written down loans worth close to $150 billion in the past few months. Still there is a growing scepticism that the writeoffs will continue and could touch $400 billion.
Following the subprime crisis, these banks have been cutting down their credit and exposure limits across the world. In India, too, some of these banks have pared their exposure. They are now cautious even while lending to Indian corporates for their overseas funding needs.
Mr Sinha sounded a note of caution on the possibility of predatory competition gripping the local banking segment. He indicated that the entire subprime crisis in the US could have been triggered by banks seeking funds, which arose out of volatile deposits and not core deposits.
To avoid a similar situation in India, Mr Sinha stressed that if there is greater financial inclusion, banks may be able to ensure better quality of deposits. “We cannot leave out a majority of the population. Core deposits are what bring about stability in the economy,” he added.
The RBI executive director Anand Sinha indicated this to the media on the sidelines of a seminar here on Friday. India’s top policymakers had said in the past month that the spillover effects of the subprime crisis to the country are quite low. However, RBI governor YV Reddy said the unusual developments in the West indicates the heightened uncertainties, which can pose a challenge for the proper conduct of monetary policy, especially for emerging market economies.
According to Mr Sinha, India has still not witnessed a single financial crisis, which shows the stability of the local banking system. But several top notch banks in the US and Europe ran into problems owing to their exposure to loans to borrowers with poor credit history. Till date, banks have written down loans worth close to $150 billion in the past few months. Still there is a growing scepticism that the writeoffs will continue and could touch $400 billion.
Following the subprime crisis, these banks have been cutting down their credit and exposure limits across the world. In India, too, some of these banks have pared their exposure. They are now cautious even while lending to Indian corporates for their overseas funding needs.
Mr Sinha sounded a note of caution on the possibility of predatory competition gripping the local banking segment. He indicated that the entire subprime crisis in the US could have been triggered by banks seeking funds, which arose out of volatile deposits and not core deposits.
To avoid a similar situation in India, Mr Sinha stressed that if there is greater financial inclusion, banks may be able to ensure better quality of deposits. “We cannot leave out a majority of the population. Core deposits are what bring about stability in the economy,” he added.
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