Liquidity main problem, will act swiftly: F.M.

New Delhi, Oct 10 (PTI) As the stock market crashed under the pressure of global meltdown and the Reserve Bank of India (R.B.I.) cut the Cash Reserve Ratio (C.R.R.) by one per cent, Finance Minister P. Chidambaram Friday promised to address liquidity and other concerns of the economy.

He also announced the decision to constitute a group
consisting of top bankers headed by Finance Secretary Arun Ramnathan, who is also Secretary (Financial Services) to make a quick assessment of the requirements of the liquidity and advise the government accordingly.

"Credit is the lifeline of trade, commerce and business and, hence, it is important that credit continues to flow to all sectors of the economy. In consultation with R.B.I. and other regulatory authorities, government will address the liquidity and other concerns about the economy," Chidambaram said in a statement.

"It is also important to maintain our confidence in
the Indian economy. As the Cabinet noted on Wednesday, the
fundamentals of our economy are strong and there are many
indicators which affirm the sound fundamentals," he said in
the statement, released by the Finance Secretary.

Chidambaram, who is believed to have rescheduled his
trip to Washington for attending the meetings of I.M.F.-World
Bank and G-20 leaders on the global crisis, stepped in after
the Bombay Stock Exchange (B.S.E.) Sensex crashed by about
1100 points this morning.

Prompt action by R.B.I. and Chidambarm's statement
helped a substantial recovery but the selling pressured
emerged to leave the market volatile.

"I have requested the group to begin work immediately,
also visit Mumbai and submit an interim report within a week,"
the Minister said.

Reacting to the measures, bankers said that though
liquidity would remain a problem, interest rate may come down.

The Ramanathan group includes representative of
R.B.I., T.S. Narayanaswamy, Chairman Indian Banks Association
and C.M.D. of Bank of India, U.K. Sinha, C.M.D. Unit Trust of
India (U.T.I.), Y.M Deosthalee, C.F.O. of L&T and Director
Incharge of L&T Finance Ltd. and R.M. Malla, C.M.D. of
S.I.D.B.I. The group has been authorised to coopt more
members, if necessary.

Chidambaram welcomed the R.B.I. decision to reduce the
C.R.R. by 100 basis points, thus making a total reduction of
150 basis points (since Monday) to inject a total of about Rs
60,000 crore into the banking system to avert a credit crunch.

"I welcome the decision of R.B.I. The Governor,
R.B.I., has also assured the government that the R.B.I. is
keeping a close and continuous watch on the situation and will
take appropriate steps according to the evolving situation,"
the Minister said.

He said that the group was set up following
representations from banks, other financial entities and
intermediaries, corporate, and small businesses that the issue
of liquidity "must be addressed in a comprehensive manner".

"There have impressed upon me that intermediation of
credit must take place smoothly and efficiently," he said.

He recalled that on Wednesday the Cabinet reviewed the
financial situation in India and authorised him to issue a
statement on behalf of the government.

"We have identified that the main problem is liquidity
and we have assured the people that we will respond swiftly
and take steps to infuse more liquidity according to the needs
of the situation. R.B.I. was advised to take appropriate steps
in this behalf," Chidambaram said.