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Liquidity: FM talks to bankers

October 22, 2008 17:55 IST

Finance Minister P Chidambaram held a meeting with senior bankers last evening in the backdrop of easing liquidity situation following a slew of measures taken by both RBI and the government.

"The meeting reviewed situation in the light of easing liquidity situation," Punjab National Bank [Get Quote] Chairman and Managing Director K C Chakrabarty said.

Credit delivery to productive sector was also discussed during the meeting, he said.

The meeting was also attended by State Bank of India [Get Quote] Chairman O P Bhatt and Indian Banks Association and Bank of India Chairman T S Narayanaswami.

Asked whether any meeting with prime minister was also there on the day, Chakrabarty said, "I am not aware of that."

Last month, owing to the tight liquidity situation, many banks had tightened their purse and went slow on credit disbursal.

Cash in the market dipped to the extent that inter-bank call money rates went as high as 23 per cent.

However, Finance Minister P Chidambaram came to the rescue of borrowers.

"Our banks are ready and willing to provide credit. Suitable advisories are being issued to the banks," he had said.

Following this, RBI issued a notification saying, "In view of the improved liquidity in the markets, the banks concerned are advised to review all such cases and permit drawal of sanctioned limits, guided by their usual commercial judgment."                  

RBI had also said that it had noticed that in view of somewhat tight liquidity conditions in the markets in the recent past, some of the banks had been averse to disbursing working capital limits and term loans (including short-term loans) to clients against the sanctioned limits.

Thereafter, to ease the liquidity situation, RBI had taken a slew of measures, the latest being repo rate (short-term lending rate) cut by 100 basis points to eight per cent on Monday.

Among other measure taken to infuse liquidity included slashing Cash Reserve Ratio - the slice of bank deposits to be kept with the central banks -- by 250 basis points. The reduction led to release of whopping Rs 1,00,000 crore (Rs 1,000 billion) in the banking system.

In addition to this, the RBI gave Rs 25,000 crore (Rs 250 billion) to banks, RRBs and cooperative credit institutions for their outgo on debt waiver scheme, among other measures.

Reposing faith in the strength of India banking sector, Prime Minister Manmohan Singh had said in Parliament that both public and private sector banks were financially sound and deposits were safe.

"Our first concern was to ensure the stability of our banking system. I am happy to inform the House that the Indian banking system is not not directly exposed to the sub-prime mortgage assets.

"Their exposure to other problem assets is also minimal. Our banks, both in the public sector and in the private sector, are financial sound, well capitalised and well regulated.

"There should be no fear of a failure of any bank. In particular, I wish to assure depositors in our banks that their deposits are entirely safe," he had said.

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