U.S. banks may prove to be the biggest losers if the United States intensifies economic sanctions against India, according to a senior Indian banker.
"Sanctions are a problem for U.S. banks, because they are losing business," said Sampatkumar Gopalkrishnan, executive director of Bank of India, India's third-largest bank company. "They are not a problem for Indian banks."
In an interview in New York last week, Mr. Gopalkrishnan also disclosed that big European banks have been actively seeking to profit from uncertainty about U.S. economic sanctions.
As speculation has increased that U.S. banks will cut down on short-term loans to Indian banks, he said, British, French, and German banks have indicated they are more than willing to step in to meet any shortfall.
Mr. Gopalkrishnan added that Indian banks, as net lenders in the international interbank markets, have no reason to worry about foreign banks cutting credit lines.
The sanctions, which bar financial transactions with Indian government agencies, were imposed on India and Pakistan after both countries resumed testing atom bombs in defiance of international agreements.
Rating agencies like Thomson BankWatch give Bank of India high marks for a steady improvement in profitability, asset quality, and capital over the last three years. But they also caution that asset quality needs to be closely monitored since much of the lending tends to be government- directed.
The Indian rupee, however, is unlikely to experience the kind of severe depreciation other Asian countries have experienced since the government continues to control the foreign exchange market.
And Mr. Gopalkrishnan also said Indian banks have virtually no exposure to either Southeast Asia or Latin America and consequently have not suffered from the worldwide crisis in financial markets.
He also noted that favorable weather has boosted agricultural production, an important component of the Indian economy. Industrial activity, which recently slowed down, will probably pick up again next year as a result of heavy government-sponsored infrastructure spending on transportation, power, and telecommunications, he predicted.
With nearly $12 billion of assets on March 31 and some 2,500 branches, Bank of India is the country's third largest, after State Bank of India and Bank of Baroda. A public share issue in February 1997 brought the government's stake down to 76% from 100%, and further public share issues are planned. However, Mr. Gopalkrishnan cautioned that the Indian government is not yet ready to reduce its stake to below 51%.
Over the last several years, Bank of India has invested heavily into upgrading its computer systems in the United States as part of a drive to consolidate its worldwide dollar-based correspondent banking operations in New York.