Off-balance-sheet (OBS) exposure of India's banks -including letters of credit (L/Cs), derivatives and guarantees - declined by a massive 26.4 per cent in the year to March 2009 according to figures recently released by the Reserve Bank of India (RBI).

The decline, precipitated by the credit crunch and RBI regulations on OBS, saw the value of these contingent liabilities fall to 107 trillion rupees (Rs107 trillion) at the end of March 2009 from Rs145 trillion in the previous year.

Reverse trend

The decline marked a U-turn after the previous three years during which India's banks' OBS exposure mushroomed by 88 per cent to Rs145 trillion in 2007-08.

A major driver of this trend was companies eager to hedge their foreign exchange contracts to offset volatile currency markets, according to RBI's annual report on banking.

Foreign banks

The central bank reports that foreign banks' exposure to L/Cs, derivatives, and guarantees also declined in the year to March 2009.

In that twelve-month period they dropped 31.2 per cent to Rs70 trillion, compared with Rs102.1 trillion in the previous year.

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