The Hindu Business Line : No payment or liquidity problem, says Finance Ministry

Ministry assurance
Indian growth story remains vibrant.
Volatility attributed to decline in global markets, metal prices, hardening interest rates.

New Delhi , May 22

The Finance Ministry has indicated that margin call pressures on brokers trading through proprietary accounts might have accentuated the stock market slide on Monday morning even while asserting that there are no payment or liquidity problems in the stock exchanges.

"The liquidity concerns have been addressed. The RBI has advised banks to provide ample liquidity to those who may require money to meet margin requirements. I don't see this as a concern anymore," Mr Ashok Jha, Secretary, Department of Economic Affairs (DEA), told reporters at a hurriedly convened late afternoon briefing at North Block.

Earlier in the day, the Finance Minister, Mr P. Chidambaram, told reporters outside Parliament that there is no problem of liquidity and there is no reason to panic. He said the RBI Governor, Dr Y.V. Reddy, had assured him that banks would provide enough liquidity to meet margin calls.

"Some pressure on margin calls was expected. My information is that brokers trading through proprietary accounts are under margin pressure," Mr Chidambaram said. He also said both FIIs and mutual funds have been buyers in today's trade at the stock exchanges.

Seeking to put to rest all controversy over the draft circular of the CBDT, Mr Jha reiterated the Finance Ministry position that the circular made no reference to FIIs. "While there were some speculative reports about a draft circular put out by CBDT, that matter has been clarified to the satisfaction of all concerned. The FIIs are governed by separate provisions of the Income-Tax Act and the relevant Double Taxation Avoidance Agreements (DTAA)," he said.

Asked whether he felt that the CBDT draft circular had a role in the stock market carnage, Mr Jha said: "To say that CBDT circular has a role is I think speculation. There are many reasons why the stock market behaved in the fashion it has". Admitting that there has been volatility in the market since May 13, the senior Finance Ministry official attributed the volatility to a number of factors including the decline in global markets, the decline in metal prices, the hardening of interest rates and the comparative attractiveness of other emerging stock markets.

SEBI statement

The SEBI Chairman, Mr M. Damodaran, told agencies and television channels that there were no systemic issues and there was no liquidity crisis in the market.

He said that SEBI was in touch with the Reserve Bank of India and the Stock Exchanges. The SEBI Chairman advised investors not to fall prey to rumours.

In a separate statement, the Central Board of Direct Taxes (CBDT) said the draft circular does not deal with FIIs at all and nor does it purport to deal with any case or class of cases. It also rejected the opinion of certain tax consultants that the draft circular was "ambiguous".

"The question whether a person purchasing or selling shares/securities is a trader or an investor remains a question of fact. The assessing officer would have to take note of the totality of the facts and circumstances before reaching a conclusion," the CBDT said.

Emphasising the sound fundamentals of the Indian economy, the Finance Ministry said on Monday that the Indian growth story remains a vibrant growth story.

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