Govt, RBI act in tandem to assure liquidity, avert panic

New Delhi, October 10 (PTI) In the face of plummeting stock market triggered by global meltdown, government and the Reserve Bank of India Friday acted swiftly to inject more cash into the banking system to avert any panic with Finance Minister P. Chidambaram saying that deposits in banks are 'completely safe'.

Following a near-1100 point fall in the Bombay stock
market within minutes of opening, worst in the last two years,
the Reserve Bank of India stepped in to cut the cash reserve
ratio by 100 basis points which together with 50-basis point
cut on Monday would release Rs 60,000 crore into the banking
system to ensure liquidity.

The Finance Minister, who rescheduled his visit to
Washington to interact with global leaders on global meltdown,
sought to assuage fears of the business, market and the
industry on liquidity crunch with a promise that the R.B.I.
would act further in this direction if needed.

"We have responded swiftly and have infused a huge
amount of liquidity... No depositor need have any reason to
worry... the last thing you should do is to act in haste or
give room for panic," Chidambaram told PTI adding the
fundamentals of the economy were strong.

The market, which started recovering on the twin
moves, again went south as the I.I.P. figures released by the
government showed industrial growth plummeting to 1.3 per cent
in August from 10.9 per cent in the comparable period last
year.

The market finally closed the day 800 points lower at
10,527.8, down more than half since January this year.

Even as the news came in about the fall of the first
Japanese financial entity along with the collapse of stock
markets in many a South Asian country, market regulator
Securities and Exchange Board of India said it was monitoring
the bourse in India and there was nothing amiss so far.

The worst hit in India by the global financial crisis
is the largest private sector bank I.C.I.C.I. Bank, whose
shares plummeted by 20 per cent on rumours casting doubts
about it financial strength, which earlier on August 29 had
seen a drop of 14 per cent in its scrip.

Jumping to its defence, Finance Ministry and RBI said
that the I.C.I.C.I. Bank as also the banking system in India
was safe and there was nothing to worry.

I.C.I.C.I. Bank Joint Managing Director Chanda Kochhar
debunked reports that depositors were queueing up for
withdrawal and that it was drying credit to its major
industrial borrowers saying that bank had enough rupee
liquidity as also overseas one.

I.C.I.C.I. would get Rs 4,000 crore from RBI following
the C.R.R. cut, she said but ruled out cut in lending rates to
its borrowers.

Talking about the capability of India economy, which
the World Bank feels is in a position to weather the global
turmoil, Chidambaram there was a storm blowing in the world
and India was suffering the "spillover and ripple" effect.

In a bid to meet the issue of liquidity in a
comprehensive manner, Chidambaram announced setting up of a
Committee of bankers and financial experts under the chairman
ship of Finance Secretary Arun Ramanathan to make a quick
assessment of the requirements and advise the government.

The committee would start work immediately and go to
Mumbai and submit interim report within a week, he said. PTI