Monday, January 07, 2008
Subprime Hits India
State Bank of India, ICICI Bank , Bank of Baroda and Bank of India are set to book mark-to-market losses on the exposures of their foreign offices to credit derivatives, with the spreads on these widening since international lenders turned risk-averse following the crisis in the US subprime (or high-risk home loan) market.Exposures of ICICI bank are about $1.5 billion, of which the article says mark-to-market losses are about 5-10%, meaning between 300 and 600 crore. That's about 30-60% of their quarterly net profit. SBI has about $1 billion and the impact to them is about 10-25% of their quarterly net profit (1600 cr) .
Disclosure: Short ICICI.
Labels: ICICI Bank
4 Comments:
It will be interesting. All along I thought Indian banking was immune to Subprime.
Just read this post and am very surprised. Thought our banks were not 'savvy' enough to invest in CDOs. There are a few points to note here:
1. Mark-to-market in the 75% range is fantasy. Real values may end up much lower than 50%. So the losses will be MUCH higher (thank stars that exposure is ONLY 1 - 1.5 billion).
2. Anonymous, Corporates all over the world consumed CDOs and other subprime time-bombs. That was because of their AAA ratings and this is the crime committed by Moody's, Fitch and S&P. There may be political ramifications and witch-hunt but no fault of the banks.
3. Subprime is only 10% of the problem and it has now spread to near-prime, prime as well as Commercial Real Estate and slowly into all sectors of the US economy.
Real reason is loose credit and low-interest rate policies which actually created the bubble.
As yeehaa99 says, this problem also exists (under the surface) in India now. Housing is unaffordable for well over 99% of our population (even a software manager getting 1 lakh a month will eventually find it near-impossible to buy a house at 50-70 lakhs as he would eventually end up paying 1 - 1.5 crores for a house that is worth well below that).
Coming crash in India will see home-buyer, builder and bank distress and prices in bubble areas can come as much as 50% lower or even lower (check out an earlier comment).
Beware!!!
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