The Indian operations of the US-based financial services giant American Insurance Group (AIG) are sound and so is the case with domestic banks, Finance Minister P. Chidambaram said in New Delhi on Thursday, against the backdrop of the current global financial crisis.
Addressing reporters after a cabinet meeting chaired by Prime Minister Manmohan Singh, the finance minister said while the government was closely watching the global financial markets, the Indian banking system remained strong.
He specifically spoke about AIG's life and non-life insurance businesses in India in a 26:74 ratio with the Tatas and said there was no cause for worry - an opinion shared by the Insurance Regulatory and Development Authority (IRDA).
“Don't compare AIG with Lehman Brothers,” Chidambaram said.
He was referring to the largest bankruptcy filing in the US history by Lehman Brothers, as opposed to funds sought by the AIG to remain afloat, which the US central bank agreed to with $85-billion bridge loan.
Speaking about commercial banks in the country, the finance minister said they were in sound financial health and had virtually no exposures in the global financial markets as per the observations of the Reserve Bank of India (RBI).
“There is no cause for any alarm that any Indian bank is exposed. There is no apprehension at all. All our banks have strong balance sheets. And the RBI is fully on top of the situation,” he said.
His statement resulted in the banking index of the Bombay Stock Exchange gain over 100 points, or 1.52 percent, Thursday after shedding more than 6.5 percent during the first three days of trading this week.
Chidambaram admitted that there could be some credit squeeze because of the global turmoil, but said this issue, too, would be addressed. “There could be some tightness in credit. We will take steps to provide liquidity.”
The finance minister also sought to allay fears that the ongoing crisis in the global financial system, triggered by bankruptcy filing of Lehman Brothers and the sale of Merrill Lynch to Bank of America, would impact India's reforms.
“All our reforms are very carefully calibrated. We don't take decisions without weighing the pros and cons. We'll constantly ensure that regulation is one-step ahead of innovation,” he said.
“There is no fear that financial sector reforms will get affected.”