The Hindu Business Line : RBI rules out sub-prime crisis happening here

“The current volatility should be viewed in the context of possible repositioning of world’s dominant reserve currency, involving significant income and terms of trade effects.”

On guard: The RBI Governor, Dr Y.V. Reddy (left), and the IBA Chairman and Canara Bank Chairman & MD, Mr M.B.N. Rao, at the BANCON 2007 in Mumbai on Tuesday. The RBI has ruled out a sub-prime crisis in the country due to its pre-emptive measures. - Paul Noronha

Our Bureau

Mumbai, Nov 27 The Reserve Bank of India has ruled out a sub-prime crisis in the country due to its pre-emptive measures. Speaking at the BANCON here today, the Governor, Mr Yaga Venogopala Reddy, said: “Though there are reports of accelerated emergence of non-performing assets in regards to consumer credit, housing and real estate in a few banks, our preliminary assessment, on the basis of information is that these do no have systemic implications either in terms of solvency or liquidity.”

The RBI, however, remained vigilant on the continuing uncertainties in the global financial markets. “ We are monitoring the process of full normalcy in global financial markets, the evolving financial contagion and the possible spill-over to the real sector after accounting for the possible extent of decoupling."

The RBI’s extraordinary vigilance was also on account of the simultaneous volatilities in several globally significant markets that included money and commodity markets and asset prices. “The current volatility should be viewed in the context of possible repositioning of world’s dominant reserve currency, involving significant income and terms of trade effects.”

Dr Reddy said that the pre-emptive policy measures involved monetary, credit and inflation environment. The RBI, he said, had also taken prudential measures that included higher risk weights and higher provisioning in respective of sensitive sectors. He said that the RBI’s own assessment had indicated that exposure of most banks to the sensitive sectors was modest. He said that the RBI had also undertaken supervisory review of select banks. This was in view of the high off-balance sheet exposures.

Best practices

Referring to reforms in the financial sector, he said that the objective was to align the regulatory framework with the international best practices.

However in making such an alignment, Dr Reddy said that the regulator gave considerable weightage to the development needs of the country and domestic factors. The RBI periodically undertook assessment of the progress, he added.

Moreover, the government and RBI together had constituted a Committee on Financial Sector Assessment (CFSA).

The central plank of the assessment would focus on financial stability and stress testing, development issues and assessment of the status and progress in implementation of international financial standards and codes. He said that the CFSA’s report would be ready by April next year.

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