Home / Economy / RBI warns banks to be cautious while lending to corporates with Western exposure

With growing economic instability in Europe and a possibility of a slowdown in America, the Reserve Bank of India asked Indian banks to be cautious while lending to companies that have exposure to Europe and American markets.

RBI Governor Shaktikanta Das also asked banks in a meeting last month to keep a quota for lending to each sector, an Indian Express report said.

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 to reduce the volume of trade for the country. After the US sanctions, Moscow was removed from SWIFT, a messaging system used by countries to enable foreign currency payment.

In response to western sanctions against it, Russia has significantly reduced its gas supply to European nations. Due to this, the whole European Union is staring a vast energy crisis. All these factors are going to impact the European economy, ultimately transferring effect to the well-established businesses of the companies in that region.

Many senior economists and top experts are hinting at a possible recession in the American economy in 2023. Recently, top executives at Goldman Sachs Group Inc, JPMorgan Chase & Co, and Bank of America Corp hinted at a mild to more pronounced recession in the American Economy in the coming months, reported Reuters. The strong US jobs data is another reason that US Fed might 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 pressure are also pushing the USA into a state of recession. Due to this, companies that have well-established businesses in that area are going to suffer in terms of their profit in the coming months. Stock markets are also responding negatively to the hints of a possible recession in the US.

"Expectations are beginning to unravel a little bit as the market realizes that the Fed may have to maintain rates at a higher level for longer than it had hoped and this is placing a more downward pressure on the markets," Jason Pride told Reuters. Jason is the chief investment officer for private wealth at Glenmede in Philadelphia.

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