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Home / Business News / 'Citi like subprime debacle not to repeat in India'

'Citi like subprime debacle not to repeat in India'

CII's new president says the total derivative exposure of all the Indian banks maybe just quarter a per cent of $500 billion balance sheet.

business Updated: May 01, 2008, 12:14 IST

Pooh-poohing the doomsayers, KV Kamath, the new CII president on Thursday exuded confidence that UBS and Citi kind of crisis will not be repeated in India, saying the total derivative exposure of all the banks here may be just quarter a per cent of $500 billion balance sheet.

"If our (ICICI Bank's) balance sheet is $100 billion, SBI balance sheet is $150 billion ... We are looking at Indian banks having a total size of $500 billion. It is not even half a per cent of that, it might be quarter per cent," Kamath told PTI when asked about Indian banks' exposure.

Asked if Citigroup and UBS, the global banking giants who lost billions due to subprime crisis, could happen in India, Kamath, who heads the country's biggest private sector lender ICICI Bank, said, "Nothing can happen like that.

"I think there is no similarity between what has happened to global banks and Indian banks...It is just an alarmist mentality that has got into us," Kamath said on fears of losses that banking sector could suffer due to the financial crisis in the Western world.

Kamath asserted there is no subprime exposure that the Indian banks have taken directly to any subprime lending, while adding that "what has happened in the world is beyond subprime... That is interest spreads have widened."

"In the context of Indian banking sector, our exposure is limited," Kamath said, when asked about the trend of one bank after another making provisions for the derivative-related potential losses.

Kamath said total exposure was just a fraction of balance sheets of Indian banks put together. "People are not putting that in context. It (the impact) is immaterial in the context of the size of Indian banking system," Kamath said on the concerns being raised over the issue.

Terming the crisis in the US and other Western markets being beyond subprime, Kamath said now it is because of widening of interest spears.

"If there was a corporate bond issued at 150 basis points over LIBOR, today it is trading with a huge increase at 250-400 basis points over the LIBOR," he said, indicating towards the increased credit costs for those having subscribed to these bonds.

Given this huge increase, Kamath said, there are two ways to address the issue -- "either you provide for it and sell the bond. Otherwise, you make a provision and wait with a home that situation will improve."
"Situation is going to turn with that hope you wait, and indeed the situation will turn around," Kamath said, adding that it has "indeed" improved the last few months.

Once the situation improves, the loss will start coming down, he noted, while adding that "the strategy whether to hold or sell these bonds depend on individual institutions."

While a number of banks in India have also disclosed provisions for derivative-related issues in their latest quarter results, the figures have been immaterial when compared with the global giants like Citigroup.

The world's largest bank Citigroup, headquartered in the US and present in virtually all the corners of the world, is doing everything from selling off non-core businesses to laying off thousands of employees, and is, reportedly, disbanding even a high-profile management committee of over 100 senior bankers.

The bank has just announced selling its US commercial lending and leasing business to GE, having reported losses to the tune of over 10 billion dollars and over five billion dollars in the past two quarters.

Citigroup's Nagpur-born CEO Vikram Pandit, who assumed the charge late last year after the bank had already immersed in huge subprime-related losses, has vowed to cut the bank's costs by up to 20 per cent.
Banking majors Merrill Lynch and JPMorgan have also suffered billions of dollars worth write-downs in the subprime crisis and the pressures are mounting on their top management teams to bring back the banks from these troughs. So is the pressure on some banking giants from Europe, such as UBS.

The Swiss banking giant UBS is said to be among the biggest sufferers among European bank from the crisis in the US and has already announced over $35 billion in subprime- related writedowns.

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