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Finance Minister of India


Shri P. Chidambaram
Finance Minister of India

2008.10.15


Press Statement of Hon'ble Finance Minister

  





               After identifying liquidity as the main problem that has constrained the financial system, a number of measures were taken between October 6, 2008 and today. These measures have infused considerable additional liquidity into the market.

2.             After extensive consultations, it is proposed to take the following additional measures:

  1. Under the Agricultural Debt Waiver and Debt Relief Scheme, Government had agreed to provide to the commercial banks, RRBs and cooperative credit institutions, a sum of Rs.25,000 crore as the first instalment. It is felt that this money should be provided immediately. Hence, at the request of Government, RBI has agreed to provide a sum of Rs.25,000 crore to the lending institutions immediately. The money will be made available to the commercial banks (Rs.7,500 crore) and to NABARD (Rs.17,500 crore). There will be no requirement of providing collateral.
  2. The limit of FII investment in corporate bonds will be raised from US$ 3 billion to US$ 6 billion. [SEBI has informed me that it will address any requests for relaxation in the proportion of investment in equity and debt required to be maintained by an FII under current regulations.]
  3. Our banks are well capitalised. Their CRARs are well above the Basel norm of 8 per cent and the RBI stipulated norm of 9 per cent. No bank has a capital adequacy of less than 10 per cent. Nevertheless, Government has decided to provide the banks access to finance in order to raise the CRAR of banks that are now between 10 to 12 per cent to reach the level of 12 per cent by a suitable date in the future. The details of the capitalisation scheme are being worked out.
  4. RBI has already issued an advisory to the banks to enable smooth flow of credit to borrowers of term loans as well as working capital. Government is also issuing an advisory to public sector banks impressing upon the banks the need to:
    • ensure easy drawdown against sanctioned limits;
    • appraise, promptly, requests for enhancement of credit limits; and
    • continue to participate actively in the inter-bank call money market.

3.             I have been informed that RBI will release a statement shortly on certain measures that the RBI intends to take.

 

2008.10.15


Press Statement of Finance Minister

               Governor, RBI was in Delhi yesterday. He called on the Prime Minister last evening. I was present at the meeting.

2.             Prime Minister reviewed the financial situation, with particular reference to the liquidity position. The developments in, and measures taken by, other countries were also reviewed.

3.             We took into account:

  • that the call rate was between 9.0 and 9.1 per cent yesterday;
  • that banks accessed approximately Rs.62,500 crore through LAF-I and LAF-II yesterday;
  • that the banks were able to access only Rs.3,500 crore from the special window of Rs.20,000 crore opened by RBI for providing liquidity to mutual funds;
  • that inter-bank lending still remains constrained and it is necessary to overcome these constraints;
  • that it is important to ensure that credit flows to borrowers within the sanctioned limits of term loans and of working capital; and that it is also important to enhance the credit limits where borrowers require more credit;

4.             Government and RBI are agreed on the measures that have to be taken immediately.

5.             Governor, RBI is on his way to Mumbai and will work out the details of the measures agreed upon. I expect to be able to make a statement later in the afternoon.

 

2008.10.14


Press Statement of Hon'ble Finance Minister

               The US and the European capital markets closed on a strong note last night. The East Asian markets have opened on a bright note this morning. It appears that the measures announced by various Governments and Central Banks have not only infused greater liquidity into the markets but also helped restore confidence to a significant degree.

2.             I hope that the same sense of optimism and confidence will be visible in the Indian markets too.

3.             Last night, it was brought to the notice of Government that some mutual funds faced some stress in liquidity in meeting redemption requirements in respect of debt instruments and money market instruments. They sought a facility for accessing funds. Consequently, Government requested SEBI and RBI to meet today and address the issue. This morning, Chairman, SEBI met the Deputy Governors of RBI. Later, RBI heard key players in the mutual fund industry. Following these meetings, RBI has announced a special 14 day repo (to commercial banks) at 9 per cent for a sum of Rs.20,000 crore with a view to enabling the banks to meet the liquidity requirements of mutual funds.

4.             Government welcomes this announcement.

5.             Government has been informed by the mutual fund industry that against their borrowing from the banks they will give as security, mainly, Certificate of Deposits (CDs) of the banks themselves.

6.             Chairman, IBA is in touch with the banks as well as the mutual fund industry to decide on an appropriate rate at which the banks will on-lend to the mutual funds.

7.             Governor, RBI has returned to Mumbai. He has been requested to go over to Delhi this evening. The Governor is scheduled to meet the Prime Minister later this evening.

 

    

 

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