Subprime woes may hit India, says RBI

The Reserve Bank of India has said continued defaults in the US housing loan market pose a risk to India, whose capital market has already taken a hit on fears of the credit crisis spreading to other economies.
Conditions in the subprime mortgage sector in the US have deteriorated significantly as reflected in the rise in delinquencies on adjustable-rate loans.
Further deterioration in subprime deliquencies could lead to reassessment of risk by investors across products and markets and retrenchment of capital from emerging market economies (EMEs) like India, the apex bank said in its Annual Report 2006-07.
India s benchmark stock market index lost nearly 1,500 points earlier this month on concerns that housing loan crisis in the US could affect profitability of Indian firms with exposure in the world s largest economy.
Although Indian bankers had earlier ruled out any major impact on India, the RBI said emerging markets could become a casualty given the contagion and herd mentality .
Lenders in the world s largest economy have been hit by high default ratio as their customers are mostly borrowers with poor credit history. The defaults had risen on account of increase in interest rates.
Since then, the US Federal Reserve has cut interest rates by half a per cent to ease concerns. Further, US Fed Chairman Ben Bernanke has dropped broad hints that the Federal Bank was prepared to act as needed to wipe away credit market woes. But the RBI warned if the contrary happens - any further monetary tightening in major economies has the potential to accentuate volatility in global financial markets and adversely impact growth and stability in EMEs.
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Source: IndiaRealEstateblog



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