Page 392 - Contributed Paper Session (CPS) - Volume 4

CPS2444 Avijit Joarder et al.
themselves from deterioration in the US economy (Dooley and Hutchison
[2012]). In the case of India, external debt did not change much from 2007-08
to 2008-09 (Viswanathan [2009]). Indian banking sector had negligible impact
from the GFC due to no direct exposure to the sub-prime mortgage assets or
to the failed institutions. The limited off-balance sheet activities or securitized
assets resulted safe and healthy behaviour of the banking system (Subbarao
[2010]).
Over the years banks and other financial institutions in our selected sample
(India, Indonesia, Korea, Malaysia, Philippines and Thailand) are being
gradually more integrated with the global financial system. The outstanding
international debt securities of the financial institutions (comprising banks and
other financial corporations) by country of issuers’ nationality and by country
issuers’ residence prove that compared to other Asian countries in our sample,
Indian financial institutions are increasingly issuing debt securities outside the
home country is a reflection of global integration.
The forex exchange (FX) reserves of India rose from around 5.6 billon USD
in 1990 to a very comfortable level of about 410 billion in end 2017, in a span
of about 30 years. The portfolio is highly dominated by foreign currency assets
(about 94% as of end 2017) and mostly denominated in USD, which hit the
low at 23.4% in end 1990 during BoP crisis and now at 95% of total foreign
currency assets. The significant increase of FX reserves hail to provide stability
to Indian economy. In this context, we examine if the Indian forex reserves
have been historically sufficient to meet short-term international claims on
India by banks in foreign countries. Normally, low share of short-term
international claims on a country compared to its FX reserves is the sign of
stable financial system because at the time of a crisis foreign investors
(including banks) moves money from volatile to stable market. As an evidence,
the short-term international claims on India with residual maturity of less than
one year was as high as 93% of India’s FX reserves during the BoP crisis (1989-
1990). Since the crisis, the share of short-term international claims fell sharply
below the level of 10% by Q1 2003 but currently remain at around 20%. While
the pace of international claims on India slowed down since 2013Q2, the level
of FX reserves continued to rise, more than double of the size of international
claims.
We look at comparative status of India compared to five other Asian
countries that during the AFC were most affected (Thailand, Indonesia,
Malaysia, Philippines and Korea). The international claims were raising and
most of these claims were of short-term nature i.e. of less than 1 years of
residual maturity. Such claims on India were the lowest compared to other five
countries. After the crisis, international claims again started to increase. In the
event of GFC during 2008, the international banks began increased lending
again to Asian and other developing countries. Such type of lending peaked

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