The Hindu Business Line : ‘Indian banking system insulated from global financial woes’

New Delhi, Sept. 18 The Finance Minister, Mr P. Chidambaram, on Thursday said the Indian banking system was “reasonably insulated” from financial market woes unfolding in the US. He, however, hinted at the possibility of a credit squeeze in the domestic economy as a fallout of the global financial crisis precipitated by the recent collapse of Lehman Brothers and buyout of Merrill Lynch by Bank of America.

“Our banking institutions are insulated from the US crisis. PSU banks have virtually no exposure while ICICI Bank has disclosed some… Our banks have strong balance sheets and they are very well regulated. All of them have made full disclosures to RBI, which is on top of the situation,” he said while replying to queries after briefing reporters on the decisions taken by the Cabinet Committee on Economic Affairs (CCEA) here.

Credit squeeze

The Finance Minister further said that there would be some credit tightening, but the Reserve Bank of India is seized of the problem. “If there is a credit crunch in the rest of the world, it will, to some extent, impact the credit availability in the Indian market… if there is some tightness in credit, we will take steps to provide liquidity in the market,” he added.

On the fate of the Tata Groups insurance venture with the American Insurance Group (AIG), Mr Chidambaram said the Tatas have assured insurance regulator IRDA that all Tata-AIG payment obligations will be met. “We have received a full report from the Tata-AIG management. IRDA has spoken to them and has got a report… Their (Tata-AIG) solvency margins are adequate and the Tatas have assured that every payment obligation will be met,” he said.

Asked whether there was a likelihood of revision in the solvency margins, the Finance Minister said these were “provided by the regulator not the Government.” The existing regulator’s guidelines require the insurance firms to keep aside 150 per cent of the uncovered liability as solvency margins.

Mr Chidambaram said the country’s financial reforms process has been carefully calibrated and the Government will continue to pursue them, while reiterating that the economy will grow close to 8 per cent in 2008-09.

Asked about the weakening rupee, Mr Chidambaram said, “We don’t take a view on the exchange rate. We are only concerned with the orderly movement of the domestic currency.”

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