Are Indian Banks in trouble like USA?

San Yad · #1 16th September 2008, 08:52 AM

Hi,

We know USA is facing big problem with financial and mortgage issues..

I am not sure how far away we are from that?

We also have banks like ICICI, HDFC which are doing well so far.

Is there any trouble that we may face in near future?

Any comments guys!

With rgds,

Alchemist · #2 16th September 2008, 09:42 AM

Nothing much to worry right now.

NPA's of banks may go up a bit if defaults by borrowers increase.

Banks have some international exposure, but it is not much compared to their balance sheet.

Aggressive lenders like ICICI Bank may have to make some provisions in next 2-3 quarters as NPA's increase.

Overall for the sector, profits and credit-growth may get hit, but I am not worried about stability of Indian banks.

San Yad · #3 16th September 2008, 12:26 PM

Quote:

Originally Posted by Alchemist

Nothing much to worry right now.

NPA's of banks may go up a bit if defaults by borrowers increase.

Banks have some international exposure, but it is not much compared to their balance sheet.

Aggressive lenders like ICICI Bank may have to make some provisions in next 2-3 quarters as NPA's increase.

Overall for the sector, profits and credit-growth may get hit, but I am not worried about stability of Indian banks.

Axis bank had transactions with Lehman.. but exposure is limited..

ICICI is also in the same boat. ICICI bank was 7 % down today.

Any comments?
Rgds

Alchemist · #4 16th September 2008, 05:52 PM

Quote:

Originally Posted by sanyad74

Axis bank had transactions with Lehman.. but exposure is limited..

ICICI is also in the same boat. ICICI bank was 7 % down today.

Any comments?
Rgds

As I stated, these exposures are not big enough to create serious problems for the banks.

See my reply in the ICICI Bank thread.

vasa1 · #5 8th November 2008, 11:22 AM

Today's Economic Times has "RBI throws a lifeline to dollar-hungry banks".

Whether these banks are public or private is not clear but:

Quote:

Foreign branches of Indian banks are facing a severe liquidity crunch, as they have funded long-term assets by borrowing short-term money.

I wonder how this came about. I thought that the Indian banks operating abroad would be regulated as stringently as local ones. There was a lot of praise for the Indian financial system. So how did this happen?

Alchemist · #6 8th November 2008, 02:37 PM

Quote:

Originally Posted by vasa1

Today's Economic Times has "RBI throws a lifeline to dollar-hungry banks".

Whether these banks are public or private is not clear but:

I wonder how this came about. I thought that the Indian banks operating abroad would be regulated as stringently as local ones. There was a lot of praise for the Indian financial system. So how did this happen?

Here is the article.

All banks with foreign operations are facing this problem.

It isn't a solvency problem. These banks don't have losses and aren't going bankrupt. The assets that these banks have, aren't bad, but there is no market for these assets and banks aren't able to liquidate these assets.

It is a liquidity problem.

To run their foreign operations, banks need dollars.

The credit markets have deteriorated to such an extent that it is very difficult to borrow in dollars.

No one wants to lend to anyone. Call markets are frozen and banks can't find dollars to run their daily operations.

This arrangement will allow the banks to borrow dollars from RBI in form of swaps.

Quote:

The RBI will provide foreign currency to banks like State Bank of India (SBI), ICICI Bank, Bank of India (BoI), Bank of Baroda (BoB) and Axis Bank on request for a period of three months.

The foreign currency would be provided to banks through foreign exchange swaps of tenors up to three months. A foreign exchange swap involves exchange of principal and interest in one currency for another currency.

The RBI said “in the context of the global developments and in order to provide flexibility to Indian banks in managing their short-term funding requirements at their overseas offices, it will provide forex liquidity to Indian public and private sector banks having foreign branches or subsidiaries.”

Source.

San Yad · #7 8th November 2008, 07:38 PM

Quote:

Originally Posted by Alchemist

Here is the article.

All banks with foreign operations are facing this problem.

It isn't a solvency problem. These banks don't have losses and aren't going bankrupt. The assets that these banks have, aren't bad, but there is no market for these assets and banks aren't able to liquidate these assets.

It is a liquidity problem.

To run their foreign operations, banks need dollars.

The credit markets have deteriorated to such an extent that it is very difficult to borrow in dollars.

No one wants to lend to anyone. Call markets are frozen and banks can't find dollars to run their daily operations.

This arrangement will allow the banks to borrow dollars from RBI in form of swaps.

Source.

what is the position after 3 month?
Sorry I am on my overseas trip and missed the news.

vasa1 · #8 8th November 2008, 07:59 PM

I think what I was trying to ask didn't come out clearly...

From what I understand, prudent banking requires (or used to require) matching the borrowing and lending rates and tenures.

If that had been done, would the "liquidity" problem have arisen?