Reddy allays sub-prime crisis fears in India

Updated on Nov 28, 2007 10:38 PM IST

RBI Governor YV Reddy rules out the US sub-prime kind of a 'stress' on the financial system in India, reports BS Srinivasalu Reddy.

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Hindustan Times | ByBS Srinivasalu Reddy, Mumbai

Reserve Bank of India Governor, YV Reddy, on Tuesday ruled out the US sub-prime kind of a 'stress' on the financial system in India, despite reports of accelerated growth of non-performing assets (NPAs) in some credit streams of some banks.

The sub-prime crisis led to commercial and mortgage banks saddled with huge NPAs in the US, threatening their existence in some cases.

In an impromptu response to the concerns flagged by some economists, including former deputy governor of RBI, SS Tarapore, recently, Reddy said: "Though there are reports of accelerated emergence of NPAs with regard to consumer credit, housing and real estate in a few banks, our preliminary assessment, on the basis of information provided, is that these do not have systemic implications either in terms of solvency or liquidity."

"Our banks with overseas presence have confirmed that they have insignificant exposure to the US sub-prime mortgage market," Reddy added.

Speaking at a risk management seminar organised by Dun & Bradstreet on October 16, Tarapore had cautioned that Indian banks were estimated to face Rs 41,200 crore of bad loans consisting of personal loans from banks, non-banking finance companies (NBFCs) and amounts borrowed on credit cards. This follows over four years of frenzied lending by banks.

This estimate does not include other sectors, which are risk-prone like three wheeler, auto and housing loans, Tarapore, who was also the chairman of the Committee on Fuller Capital Account Convertibility, added.

The RBI governor cited the RBI's pre-emptive monetary policy actions addressing evolving monetary, credit and inflation environment as one of the main reasons for escaping such crisis.

Others include prudential measures on lending to sensitive areas such as capital market, housing, real estate etc; still lending to sensitive sectors are low; supervisory action on off-balance sheet exposures; and regulatory focus on liquidity.

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