Lehman collapse won't hurt public sector banks: Chidambaram
18 Sep 2008
Mumbai: Public sector banks have virtually no exposure to Lehman Brothers and our banking system as a whole is s reasonably insulated from global financial market risks, although a credit crunch in the rest of the world will to some extent impact credit available in the Indian market, finance minister P Chidambaram said.
''All our banks have very strong balance sheets. They are very well regulated and all of them have made full disclosures and RBI is on the top of the situation,'' he told CNBC TV-18 in an interview.
''There is no cause for alarm that any Indian bank is vulnerable,'' the finance minister said.
If there is some tightness in credit, we will take some other steps to provide liquidity to the market, he said a day after the Reserve Bank of India took some steps to provide liquidity to the banks.
On Tuesday, the RBI said it would increase banks' access to central bank funding to help them tide over any liquidity problems. It also said it would sell dollars to augment supply in the foreign exchange market.
He said decisions on financial reforms in the country have been taken with careful consideration of their pros and cons and the process will continue. The reforms, however, would have a bearing on the international situation as also our ability to keep regulations one step ahead of innovation.
''Whether prudential guidelines need to be tightened, it is for RBI to take a decision,'' he said.
All I can assure you is that all our financial institutions are on a sound foundation. Both IRDA and RBI have assured me that there is no reason for any apprehension.
Meanwhile, some of the central banks in Europe and Asia are co-ordinating a massive $180 billion cash infusion to credit-hungry markets to ease the global funding squeeze.
Concerns of the credit crunch and the withdrawal of funds by foreign investors in Indian stocks, meanwhile, have pushed the Indian rupee to a two-year low near 47 against the US dollar on Tuesday.
Chidambaram said the rupee may trade either way depending on the market conditions and the authorities are less inclined to act on it unless the movements are out of tune with the market.
''We are concerned about orderly movement and RBI takes and will take steps to ensure this,'' Chidambaram said, which helped the rupee strengthen to around 46.50 per dollar from 46.70.
Chidambaram's comments follow reports that private sector ICICI Bank held $83 million (57 million euros) of senior bonds issued by Lehman Brothers, and would increase its provision on the debt by about $28 million to cover half of that exposure. ICICI Bank has consolidated assets worth $103 billion.
Chidambaram said despite the global financial market crisis, he expected economic growth in the country to be around 8 per cent in the fiscal year ending March 2009.
The economy, which has grown above 9 per cent for the past three fiscal years, is widely expected to slow to less than 8 per cent in 2008-09.
