Dubai: Indian banks' exposure to Dubai World is in the range of $275 million (Dh1 billion) to $300 million and it will not have any material impact on the banking sector's performance this year, a senior Reserve bank of India (RBI) official told reporters in Dubai on Monday.

"About four or five Indian banks are owed a combined $275 million to $300 million. The RBI is fully aware of the exposure and we do not think it will have any huge impact on any bank in particular," said K.C Chakrabarty, Deputy Governor of RBI.

Commenting on the impact of the global crisis on the UAE and Dubai, Chakrabaty said that the UAE government and the Central Bank have taken effective measures and says there is no reason to panic.

On granting licences to foreign banks to open branches in India, the RBI deputy governor said it will be decided on a reciprocal basis. A number of UAE based banks have shown interest in starting operations in India, and Indian banks including the State Bank of India are keen to open branches in the UAE.

Earlier in the day, speaking at the Banker's Lunch organised by the Emirates Bankers Forum at the Dubai International Financial Centre, Chakrabarty said India was less impacted by the global financial crisis largely because of its conservative monetary and fiscal policies.

Policies

"We are not claiming that we had any special formula. It is a combination of prudent monetary and fiscal policies and to a great extent good luck that helped India to withstand the crisis," he said.

Speaking about the need to exit the economic stimulus packages implemented by central banks and governments across the world, Chakrabarty said India has exited most of the stimulus packages it had adopted in response to the financial crisis.

"We have withdrawn most of the measures relating to monetary easing. It will be unreasonable to expect interest rates to be low for too long as it will penalise the savers," he said without giving any target or time line for an interest rate hike that is widely anticipated by the markets.

Meanwhile, analysts are expecting India to start to unwind its fiscal stimulus. Goldman Sachs Group Incorporated said in a report yesterday that the Union Finance Minister, Pranab Mukherjee, may narrow the budget deficit to 5.3 per cent of gross domestic product in (GDP) in the financial from an estimated 6.3 per cent of GDP in the previous year. India will unveil its budget next Friday.