“We must be prepared for a temporary slowdown”
NEW DELHI: Prime Minister Manmohan Singh on Monday sought to assure the Lok Sabha that even though the ongoing global financial crisis will have an “indirect impact” on the Indian economy and “we must be prepared for a temporary slowdown,” the deposits in the country’s public and private sector banks were “entirely safe” and there should be “no fear of a failure of any bank.”
Making a suo motu statement in the House on the global meltdown, its impact on India and the steps that have been taken to tackle the fall-out, Dr. Singh said: “Our first concern was to ensure the stability of our banking system… The Indian banking system is 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 financially 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.”
In his statement, coming on a day when the Reserve Bank of India (RBI) cut its short-term (repo) rate for lending to banks by one per cent to induce cheaper credit, Dr. Singh said the government “will not hesitate to do more, if needed” to inject greater liquidity into the cash-strapped banking system.
At the same time, he expected “further reduction” in the wholesale price index as the WPI-based inflation rate had already showed signs of a clear deceleration.
The Prime Minister conceded that the global liquidity crisis had shaken the people’s confidence in the financial system and resulted in a steep decline in stock markets across the world. With a sharp slowdown in economic activity, the prospects of a prolonged recession in industrialised countries were evident.
“Many observers have described this as the worst crisis since the Great Depression of 1930s. India, like other developing countries, is experiencing the ripple effects of the financial crisis. However, we have taken a number of steps to minimise the impact,” he said.