?Banks must have long-term outlook?

RBI deputy governor V Leeladhar has advised banks to ensure that their business strategies and decisions are guided by the longer-term perspective. He also noted that the temporary counter-cyclical measures taken by the RBI are ad hoc in nature in response to a particular situation.

?The banks would, therefore be well advised to ensure that their business strategies and decisions are guided by the longer-term perspective of the systemic and macroeconomic developments and are not unduly influenced by the current episode of the exceptional events,? said Leeladhar at the Bankers? Club in Kolkata on Sunday.

?While the temporary counter-cyclical measures taken by the RBI are as per the need of the hour, it has to be borne in mind that the measures are ad hoc in nature in response to a particular situation,? he added.

?Since the banks would have a key role in successfully countering the adverse impact of the recent developments, their continued safety and soundness and financial health would be of utmost importance? for the banks, for their customers as well as for the public policy authorities from a systemic perspective,? he noted.

Leeladhar acknowledged that on account of liquidity crunch in the western world, there has been wide-ranging de-leveraging in evidence as the global investors were constrained to liquidate their investments in the financial markets.

?This has also resulted in significant FII divestments in the Indian equity markets and the capital outflows from India. This, in turn, impacted the systemic liquidity and also exerted pressure on the exchange rate of the rupee,? he said.

?The RBI intervention in the forex markets also added to the pressures on the rupee liquidity,? he added.

A detailed study undertaken by the RBI recently in regard to the impact of the sub-prime episode on the select banks had revealed that none of them had any direct exposure to the sub-prime markets in the USA or other markets,? said Leeladhar.

?However, a few Indian banks had invested in the collateralised debt obligations or bonds which had a few underlying entities with sub-prime exposures. Thus, no direct impact on account of direct exposure to the sub-prime market was in evidence though a few of these banks had to record the mark-to-market losses caused by the widening of the credit spreads due to adverse impact of the sub-prime episode on the term liquidity in the market,? he noted.