India’s vulnerability to the after-effects of sub-prime crisis in the U.S.A. is beginning to come out in the open. The ICICI Bank, India’s second largest bank in the private sector is reported to be hit with a mark-to-market loss of U.S.$263/- Million in its loan and investment exposure. It is estimated that the Bank and its overseas banking subsidiaries have an aggregated exposure of U.S.$2.2/-billion in credit derivatives of which about 500 Million Dollars is in the books of its overseas subsidiaries.
The above exposure would affect the Bank’s profitability to the extent that it has to make provisions for such exposures. For the ensuing quarter which ends on 31st March,’008, the Bank would have to make an additional provision of U.S.$74/-Million, which gets added to U.S.$189/-Million that has been provided for previous quarters.
Explaining about these developments, Ms.Chanda Kochhar, the Joint M.D. of the Bank said that there has been no decision to sell down these loans. They are known as mark-to-market losses. As and when the money comes back, the loans would be recovered and this process should take about 4 years. According to her, there is no cause for alarm as there has been no significant deterioration in the actual credit quality of underlying investments. The Bank has also not made any investments in the overseas market for the past six months.
The Public Sector Banks have so far kept a mum on the extent of the impact of this crisis on their books. Their exposures are estimated to be around US$1.5 /- billion which could translate into a loss of about 200/-Million U.S.$. State bank of India and Bank of India are reported to be having major exposure among the Public Sector Banks. However, it is somewhat of a solace to note that their exposure is significantly lesser.
With this monster showing its ugly head in India, the recovery in the stockmarket appears to be a distant reality.