The Hindu : Business : Tackling U.S. sub-prime crisis in India

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Saturday, Oct 06, 2007
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Tackling U.S. sub-prime crisis in India

Special Correspondent

BANGALORE: The Union Finance Ministry has been holding a series of meetings with major banks and credit rating agencies to deal with the impact of the ‘sub-prime crisis’ in the U.S., Advisor to the Union Finance Minister, Parthasarathi Shome, said here on Friday. “While the U.S. has managed such monetary fluctuations in the past, in the present context, there are impacts on India and other emerging markets and the government will carefully study the rupee movement and to what extent we can stand the current ‘liquidity surge and hot capital inflow,’ with overseas financial institutions looking here for better returns,” Mr. Shome said while addressing a Confederation of Indian Industry conclave on the sub-prime crisis.

Indian industry, still largely driven by local demand, could withstand the sub-prime situation affecting the U.S. banks and mortgage companies, but there could be a short-term impact on the stock markets and on credit instruments with overseas investments, he remarked. “We analysed data from four major banks, and in one case found an adverse impact equal to $2 billion on its credit instruments. Such ‘contagious effects’ from other major economies may recur in future too. Only long-term measures such as better risk assessment instead of immediate profits by financial institutions, can help us avoid monetary crises, learning lessons from the recent past in regions like East Asia and parts of Latin America,” he concluded.

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