World leaders in huddle over US rating loss

Exposure to US debt concerns India

Leaders of the powerful G7 nations on Sunday raced for a joint response to spiralling tension ahead of the opening of global financial markets on Monday with fears of further meltdown looming large in view of the downgrade and the eurozone crisis.

The market meltdown last week had seen more than US $ 2.5 trillion being wiped off from investors' wealth, and the policy- makers were seen debating over ways to avoid further turmoil.

An emergency phone meeting of finance ministers and central bank governors  of the seven leading economies in the world has been convened on Monday, Kyodo news agency reported on Sunday to discuss the twin crisis.

Amid the reigning chaos, the rating agency, Standard & Poor’s, which has downgraded the US from the top-notch ‘AAA’ level, gave another dire warning that there was 1 in 3 chance that the US credit rating could be downgraded another notch if conditions erode over the next six to 24 months.

Giving a bleak future of America’s credit rating, a top official of S&P said, “We have a negative outlook,...which... leads to a longer time frame, from 6 months to 24 months.”
India’s concerns.

Back home, concerns grew as it emerged that India is one of the 15-largest foreign creditors to the US, as the country’s  exposure to the United States’ ballooning debts is estimated at $41 billion — higher than the money America owes to countries like France and Australia.

The overall national debt of the US is moving nearer to $15 trillion, out of which it owes over $4.5 trillion to foreign countries holding the US government debt securities.

While China is the single-largest holder of the US treasury securities with $1.15 trillion, India stands at 14th position with $41 billion (about Rs 1.83 lakh crore), as per the US Treasury Department.

The unprecedented debt downgrade of the US might also lead to an immediate action by the Reserve Bank of India, which allows holding of government debt securities of countries with mostly a “Triple-A” rating. While a vast majority of the $41 billion portfolio is owned by the RBI itself, some Indian banks also might have some exposure, sources said.

They said the RBI was most likely to allow holding of the US securities even with a notch-lower rating, as it has been itself amassing the US treasury securities over the past one year despite a deepening debt crisis there.

The Indian holding has grown by about $10 billion in the past one year, the US Treasury data shows. The RBI holds the US treasury securities as part of its foreign exchange reserves and the dollar holdings account for about 10 per cent of its total portfolio.

Some experts pointed out that India has been increasing its exposure on the pretext that the US debt bonds were one of the most secure from default risks. While an exposure of $41 billion is a substantial figure from Indian context, this accounts for less than 0.3 per cent of the US’ total debt and just about 1 per cent of its total foreign debts. In fact, the Indian exposure is equivalent to an estimated $40 billion worth treasury bonds held by one single entity, Warren Buffett-led Berkshire Hathaway.

The overall foreign holding of the US government securities has grown by about $500 billion in the past one year, while China has increased its exposure by about $300 billion during this period.

Among top foreign creditors, China is followed by Japan ($912 billion), the UK ($346 billion), Brazil ($211 billion), Taiwan ($153 billion), Hong Kong ($122 billion), Russia ($115 billion), Switzerland ($108 billion), Canada ($91 billion), Luxembourg ($68 billion), Germany ($61 billion), Thailand ($60 billion), Singapore ($57 billion) and India ($51 billion).

Countries with lower exposure than India include Turkey, Ireland, South Korea, Belgium, Poland, Mexico, Italy, Netherlands, France, Philippines, Norway, Sweden, Colombia, Israel, Chile, Egypt, Malaysia and Australia.