Reserve Bank of India Governor D Subbarao said that Indian banks have some exposure to distressed financial instruments, but it was very small compared to the overall size of the business.
"Indian banks do not have any direct exposure to subprime mortgages. The banking sector, through its overseas branches, has some exposure to distressed financial instruments and troubled financial institutions. But this exposure is part of the normal course of their business and is quite small relative to the size of their overall business," Subbarao said.
The RBI Governor, who is attending the Annual Meetings of the Bank and the International Monetary Fund, said in a statement, "The fundamentals of the Indian economy have been strong and continue to be strong. The Indian banking system is sound, well-capitalised and well-regulated. Our forex and money markets have been functioning in an orderly manner."
He is expected to make his formal statement to the International Monetary and Financial Committee on Saturday morning given that the Finance Minister P Chidambaram cancelled his visit at the last minute due to developments back home concerning the ongoing global meltdown and the financial carnage unleashed on Wall Street.
"What we are witnessing today in the Indian markets is an indirect, knock-on effect of the global financial situation. This is only a reflection of the uncertainty and anxiety in the global financial markets," he added.
The Reserve Bank of India has taken action to inject liquidity into the system. "We are monitoring the situation on a continuous basis, and stand ready to take appropriate, effective and swift action."
"I want to reiterate that our banking system is stable and sound. There is no reason for any anxiety or uncertainty," he added.
