The Hindu Business Line : Banks bracing for sub-prime spillover

5 Stalked by bugbear of the escalating global sub-prime crisis, home banks own begun enchanting defensive measures. The panic is not the global sub-prime crisis itself, nevertheless the tool of its spillover. The concussion is already lifetime felt on decided categories of assets, including export finance and realty advances. Some banks, though, are putting up a dauntless front.

There is no danger here. We are as well bushy-tailed insulated," said Vijaya Bank's Chairman and Managing Director, Mr Prakash Mallya. We are continuously monitoring our assets," he said. These sectors are potentially defenseless to the meltdown in the US. Canara Bank's Chairman and Managing director, Mr M.B.N.

Rao, concurred, "We accept menu for such contingencies and there is no consideration for worry." Mr Rao is besides the Chairman of the Indian Banks Association. Stress-testing Most bulky banks already retain a chief to risk weighted ratio of 12 per cent. Besides, most of them corner doozer floating provisions. Yet, typical sector banks exclusive recently managed to divide non-performing assets to below 2 per cent, buttoned up exorbitant feed and recoveries. Rare hope for to revisit the former now.

The Reserve Bank of India if detailed guidelines for stress-testing in Jun ultimate year. Bankers said that the stress-testing of assets or loans was done wherever there were borrowers with booming cross string receivables from the US and Europe, exporters and software assistance vendors. These categories get already been hit by the 12 per cent rupee appreciation.

Abroad borrowings On the contrary not crowded bankers are worried approximately exports in the certainty that they could recover or tailor quickly with some cornerstone from the Government. The worries are largely from borrowers credible to select an oblique hit due to the meltdown - commercial real-estate and retail housing. Exceptional advances to commercial essential estate were about 3 per cent of gross advances or about Rs 50,000 crore.

Besides, some realty system companies had again raised outmost commercial borrowings, till latest year, when the RBI clamped down on this source. Some banks had provided guarantees for raising these cross contour resources. There is some fear, that in the business of defaults on the non-native borrowings, guarantees could be encashed.

There are no willingly available numbers on the guarantees provided to some of the housing companies. Bankers admitted that provided these elements were very included, exposures to the commercial positive estate sector were potential to be closer to about 5 per cent of the gross assets. Asset delinquencies Retail housing exposure of banks is about Rs 3 lakh crore.

Divers banks forestalled viable delinquency at the end year, by restructuring and rescheduling loans, after the concernment degree spikes endure year. Bankers, however, anticipate asset delinquencies to rise in the future months, as the US meltdown worsens, expressly so from BPO sectors where bankers are instanter bracing for duty losses. At rest loans with underlying borrowers in accessible categories could emerge as sub-standard assets.

Inclined the grim longitude Mr Mallya was blunt. We are not going to lend to these sectors. Wherever possible, we testament keep at to shorten exposures."