The global financial turmoil has Indian banks worriedabout their overseas operations. Most of banks feel that if the conditions worsen their international branches will get affected.

The banks fear that foreign lenders may not turn over credit granted to their overseas offices as inter-bank exposure is going slow. They are worried because deposits in their international branches have reduced over the last fortnight.

The Indian banks have expressed their concerns to RBI in a recent meeting which was attended by RBI's deputy governor Rakesh Mohan and CEOs of Standard Chartered Bank, HSBC, ICICI Bank, State Bank of India, Union Bank of India, IDBI Bank, Allahabad Bank, Syndicate Bank and Jammu & Kashmir Bank.

A senior bank official said, "In this context, we have asked help from RBI for a contingency plan."

A reciprocal line of credit is followed by most of the Indian banks whereby they lend to the foreign bank's branch here while the foreign bank extends similar support to the Indian bank's overseas arm.

Indian banks have extended loans on expectations that lines of credit by foreign banks would be rolled over on maturity. "However, if those lines, which are due in the very near future, do not get rolled over, banks' overseas office may face asset-liability mismatch," said a bank chief.

This will lead to Indian banks swapping rupees into dollars in the domestic market to support their overseas operations. "However, foreign banks with Indian operations may suffer higher liquidity problems than Indian banks with foreign operations," said a treasury head.

The shortage of dollar in the market has led to the inter-bank rates climbing up in the financial centers. The inter-bank lending in US and UK markets have declined sharply due to cash shortfall.

During the meeting, RBI also reviewed the liquidity position of banks and made enquiries regarding credit extension. Bankers have insisted RBI to reduce the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) from their current levels of 9% and 25% respectively in order to enhance liquidity in the system.

A banker said, "We have asked RBI to reduce CRR and SLR at least for infrastructure loans and allow us to issue tax-free bonds for funding such projects."

The increase in credit demand has come from fertilizers, oil and infrastructure companies.