Sub-prime not to impact banks: RBI

Indian banks' exposure to US sub-prime mortgage insignificant, says central bank

Banking regulator Reserve Bank of India today said Indian banks with overseas presence have insignificant exposure to the US sub-prime mortgage, indicating negligible impact on the books of banking entities.

Plus pre-emptive monetary policy actions and prudential steps, which are already in place, will ensure that problems akin to the sub-prime in the country will not hit the financial system.

"Our banks with overseas presence have confirmed that they have insignificant exposure to the US sub-prime mortgage market," RBI Governor Y V Reddy said addressing bankers' conference 2007 in Mumbai today.

The large public sector and private banks, including State Bank of India and ICICI Bank, with overseas presence have negligible exposure to financial products like Collateralised Debt Obligation (CDO) based on sub-prime loans in North America.

Reddy said that since 2005, the central bank had flagged its concern over global imbalances, under-pricing of risks, excess volatilities, dispersion of risks to unidentifiable sources.

The "extraordinary vigilance" of the environment is warranted due to simultaneous volatilities in several global significant markets like money, credit and currency markets; commodity prices, especially oil and food items.

Some analysts have flagged the prospect of a sort of sub-prime lending problem within India also, Reddy said.

Though certain reports indicate the rise in non-performing assets in real estate, credit card portfolio of a few banks, they do not have implications for solvency or liquidity.

Various prudential steps including higher risk weights and higher provisioning for sensitive sectors such as capital market, housing, real estate are already in place.

The initial exposure of most banks to the sensitive sectors mentioned above has been very modest and RBI had conducted intensive supervisory review of select banks when it was observed that their off-balance sheet exposures appeared large or were rapidly accelerating, he added.