RBI warns banks to be cautious while lended to corporates with western exposure

 

The central bank's warning comes in the wake of the Russia-Ukraine crisis and a possible recession in the US

With growing economic instability in Europe and the prospect of a recession in the US, the Reserve Bank of India asked Indian banks to be cautious while lending to companies investing in Europe and the US markets.

An Indian Express report said that even RBI governor Shaktikanta Das, in a meeting last month, had asked banks to keep a quota for lending to each sector.

Mint could not independently verify the report.

It is worth noting that since the beginning of Russia's invasion of Ukraine, Western countries have imposed sanctions on Russia in order to reduce the trade volume for the country. Following the US sanctions, Moscow was removed from SWIFT, a messaging system used by countries to enable foreign currency payments.

In response to Western sanctions against it, Russia has significantly reduced its gas supplies to European countries. Due to this, a huge energy crisis has arisen in front of the entire European Union. All of these factors are going to affect the European economy, eventually shifting the impact to the well-established businesses of companies in that region.

Many senior economists and top experts are indicating a possible recession in the US economy in 2023. economy in the coming months, Reuters reported. Strong US jobs data is another reason why the US Fed may continue with its aggressive rate hikes in the future.

In addition to prolonged high-interest rate hikes by the Fed Bank, record inflation and geopolitical pressures are also pushing the United States into recession. Due to this, companies which have well established business in that sector are facing loss in terms of their profits in the coming months. Stock markets are also reacting negatively to signs of a possible recession in the US.

"Expectations are starting to ease a bit as markets realize that the Fed may have to keep rates higher than expected and that is putting more pressure on markets," Jason Pride told Reuters. Jason is the Chief Investment Officer for Private Assets at Glenmeade in Philadelphia.