Business Daily from THE HINDU group of publications
Wednesday, Oct 17, 2007
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Business Daily from THE HINDU group of publications Wednesday, Oct 17, 2007 ePaper |
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Mortgage Money & Banking - Housing Finance Web Extras - Non-Performing Assets Sub-prime crisis brewing here, warns Tarapore “The domestic sub-prime crisis could explode anytime. 
Mr S.S. Tarapore Our Bureau Mumbai, Oct. 16 India is headed towards its own home grown sub-prime credit crisis, as there has been a scorching pace of credit expansion in the past four years, says Mr S. S. Tarapore, former Deputy Governor of the Reserve Bank of India. Addressing a seminar on risk management, Mr Tarapore said that it was wrongly believed that such as personal loans, credit cards, real estate, housing and capital markets were not really risk prone and, hence, lending to these sectors reached compulsive proportions. But banks and other financial institutions are now feeling the impact of years of lack of sustained recovery efforts in these sectors. In the past one year, personal loan pools securitised by credit rating agencies are estimated at Rs 4,800 crore, while other personal loan pools are estimated at Rs 2,000 crore, he said, referring to informal calculations by economist, Mr M G Bhide. Personal loans outstanding in the books of banks and non-bank finance companies are estimated at Rs 35,000 crore and about 80 per cent or Rs 28,000 crore are estimated to be sub-prime. Credit card dues outstanding are estimated at Rs 16,000 crore and an estimated 40 per cent are hardcore rollovers, which is yet another word for sub-prime. In effect, about Rs 41,000 crore of sub-prime lending, which could explode anytime, is accounted for by just these two sectors, he said. About the sudden appreciation of the rupee, Mr Tarapore, who was the chairman of the RBI Committee on Capital Account Convertibility said it was developing into a major risk not only to the export sector, but all other sectors of the economy.
The appreciation of the rupee will widen the existing current account deficit and as the deficit becomes unsustainable, there would be a sudden exodus of capital, he pointed out. “An appreciation of the rupee, combined with a rising stock market is a standing invitation to speculative capital inflows to first flood the Indian economy and then to stampede at the exit door,” he said. About the glut of liquidity in the banking system and the huge forex inflows, Mr Tarapore said that merely enhancing the limit under the market stabilisation scheme was not adequate to tackle the problem. Instead of reducing the Cash Reserve Ratio, the RBI should increase the CRR, by one percentage point, as this would immobilise about Rs 30,000 crore. Eventually, authorities may have to think of unusual measures like imposing an unremunerated reserve requirement on all capital inflows, under which, say 10 per cent of the capital inflows are deposited with the RBI for a period of one year, Mr Tarapore said. More Stories on : Mortgage | Housing Finance | Non-Performing Assets
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