Foreign banks have sharply increased their exposure to banks and financial companies in India by providing loans to the tune of $28 billion during the last quarter of 2007, according to the latest banking statistics of the Bank for International Settlements (BIS) last week.
Gushing cashflow
- The rise in lending by banks in Europe and the United States to their counterparts in India reflects the degree of confidence in the Indian economy
- Analysts caution India to maintain high vigil on its overall fundamentals, including rising inflation, on the back of high exposure by global banks to the country
"The rise in lending by banks in Europe and the United States to their counterparts in India reflects the degree of confidence in the Indian economy at a time when the global credit crisis had sharply deteriorated," banking analysts said.
"In Asia, India borrowed $28 billion, followed by China ($25 billion) and Korea ($17 billion)," said BIS, which is reckoned as the global watchdog for central banks the world over.
Worldwide consolidated foreign claims on India, which imply cross-border as well as local claims made on local residents by foreign offices of domestic banks, have gone up from $168,087 million to $195,939 million during the end of the third and fourth quarters of the last year.
"BIS figures suggest international banks do not harbour fears about the strength and resilience of Indian banks," said a Geneva-based banking analyst, arguing that "India is not facing the same travails as banks in the US and Europe, following the credit crunch, which cropped up because of the sub-prime mortgage meltdown."
A detailed break-up of the claims made by foreign banks on Indian banks and financial companies reveals that 16 countries have stepped up their exposure during the end of Q3 2007 and Q4 2007.
The large lenders are British banks, which increased their exposure by $7.317 billion (increasing from $37.7 billion at the end of Q3 2007 to $45.1 billion at the end of Q4 2007), followed by the United States banks ($6.42 billion), the Netherlands banks ($3.309 billion), German banks ($2.99 billion), Swiss banks ($2.64 billion), Japanese banks ($1.9 billion) and French banks ($884 million), among others.
Foreign claims on developing countries accounted for 38 per cent of the growth in total foreign claims, with emerging Europe ($160 billion) and emerging Asia ($110 billion) having increased the most.
Significantly, total external claims had increased by $1.1 trillion the world over, which was triggered by increased lending from the euro area and UK banks, BIS said, pointing that "the inter-bank share of new credit expanded from 64 per cent in the third quarter to 73 per cent in the fourth quarter".
The BIS data also revealed a sharp slowdown in growth in the US-dollar denominated claims, while "new claims in euros more than doubled and increase in sterling claims amounted to almost two-thirds of the high level of the of the first quarter of 2007."
Given the increased exposure of foreign banks to Indian banks and financial companies, it is important that India continues to maintain high vigil on its overall fundamentals, especially the rising inflation and exports of software services to the US and other markets, analysts said.
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