New Delhi, Oct 20: Accepting that India is experiencing 'the ripple effects' of the global meltdown, Prime Minister Manmohan Singh on Monday, Oct 20 assured the nation that the country's banking system is financially sound and people's deposits are safe. Stating that fundamentals of the Indian economy are stable, the Prime Minister,in a sou motu statement in the Lok Sabha, however, said there could be 'a temporary slowdown in the Indian economy'.
He said some estimates project GDP growth to decelerate to 7.5 per cent, while most pessimistic estimates peg it at no less than per cent. But he assured that his government's effort will be to minimise the negative of the financial crisis and return the growth trajectory of per cent once global situation stabilises. The country's economy grew at 9.2 per cent in 2007-08.
The Prime Minister assured the House that Indian banking system is not "directly exposed to the sub-prime mortgage assets "which triggered the world crisis in the United States. Indian banks' exposure to other problem assets "is also minimal". The economist PM said: "Our banks, both in the public sector and in the private sector, are financially sound, well capitalised and well regulated." He said:"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."While stating that banks are providing credit in line with anticipated credit targets, Dr Singh, however, admitted to liquidity squeeze in the market. "External commercial borrowings....have dried up , as have international suppliers credits," the Prime Minister said, adding this had led to a "reduction in overall credit availability," and has thus produced a "liquidity crisis in the system".
Listing a slew of measures recently taken by the government in a bid to ease credit squeeze in the market, including one per cent cut in the repo rate announced today by Reserve Bank, Dr Singh said liquidity position in the country's financial system has 'improved considerably'. "The call money rate today is around 6.8 per cent,"he added.
Repo rate is one at which commercial banks borrow money from the apex bank, while call money rate is the overnight interest rate at which banks borrow from each other to meet their obligations.