Finance minister P Chidambaram on Thursday calmed the panicky stock markets, stating Indian banks have virtually no exposure to Lehman Brothers, the fallen Wall Street investment bank. He also stated that events abroad would not derail financial sector reforms.
The stock markets, nervous in recent days, reacted well to the minister?s assurances. The bellwether BSE Sensex, which had closed at 13,262 on Wednesday and slumped by 704 points in the morning session, swung back after Chidambaram?s comments around noon. The Sensex closed the day up 52 points, at 13,315.
Chidambaram said the government would continue reforms to maintain the economy?s growth momentum. He said regulators have assured the government that there were no concerns about Indian banks and financial institutions, while admitting that the financial markets would feel some impact from the global turmoil.
?If there is a credit crunch in the rest of the world, it will, to some extent, impact credit availability in the Indian market? but we will take other steps to provide liquidity in the market,? he said after a meeting of the Cabinet committee on economic affairs on Thursday.
?All our banks have strong balance sheets. (They are) very well regulated? all of them have made full disclosure to the Reserve Bank of India (RBI). Only ICICI Bank had some exposure and they have already provided for the losses,? Chidambaram said, adding that it was up to RBI to decide if prudential guidelines need to be tightened. The country?s largest private sector bank revealed this week that it had exposures to bonds worth $83 million issued by Lehman Brothers.
Dismissing concerns that the troubles plaguing the American International Group (AIG) could reach Indian shores, Chidambaram said the US company?s joint ventures with the Tata group in the insurance business do not have any solvency problems. ?Their Indian partner, Tata group, had assured government they would meet all payment obligations,? Chidambaram said. AIG had to be rescued by the US government with an $85-billion loan on Tuesday.
Stressing that the current downturn in the global economy and financial markets should not impede India?s reform agenda, the minister said, ?As long as regulation remains a step ahead of innovation, there is no reason to fear that financial sector reforms will cause us difficulties or problems.?
Speaking at the Field Marshal KM Cariappa Memorial Lecture on Wednesday, Chidambaram slammed India?s approach to liberalisation marked by ?gradualism?, which is holding back progress in many areas. ?Obvious examples are the financial sector, the mining & minerals sector, and even sectors as mundane as sugar and fertilisers. Some not so obvious examples are atomic energy and defence production,? he said.
Warning against a tendency to be lulled into smugness by the high growth in recent years, he said, ?Whether the growth rate is sufficient or not is a question that can be answered only by reference to outcomes. Despite 18 years on the reforms path, the benefits of higher growth have not trickled down to those at the bottom of the pyramid.?