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'Subprime crisis prevents rates from softening'

US Sub-prime turmoil has caused tightening liquidity situations and firmness in pricing preventing banks to soften interest rates, a top banker said.

business Updated: Jun 15, 2008 12:50 IST

US Sub-prime turmoil has caused tightening liquidity situations and firmness in pricing preventing banks to soften interest rates, a top banker said.

"The indirect adverse impact of this (subprime) is being felt in the form of tightening system liquidity and firmness in pricing, which has kept rates from softening. The full impact is still getting revealed and affecting more institutions and countries," State Bank's Chairman O P Bhatt said at SBI's Annual General Meeting here.

However, the impact of the subprime crisis in india is likely to be limited because of small size of the external sector and prudent policies put in place by the regulators and policy makers, Bhatt said.

Though the bank is offering derivative products to its clients, SBI doesn't have any direct exposure to the US sub-prime market and the bank did not see any significant impact of the crisis, he said.

Earlier State Bank had said that its clients lost upto Rs 700 crore after taking exposure in derivative products in the last financial year and it has set aside Rs 40 crore to cover the potential losses.

Bhatt also said supporting a growing economy while simultaneously meeting the challenges emnating from global players is the foremost challenge for Indian banks.

"Going forward, the biggest challenge for banks will be to support a growing economy.....While meeting competition from global players not only in markets outside but also on their domestic turf," Bhatt said.