Banks safe, but economy may slump: PM

HIS ECONOMIC ADVICE: Manmohan Singh says tackling inflation remains goverment’s priority.

Indians banks are safe and depositors need not worry for their money, Prime Minister Manmohan Singh has told Parliament for the first time after the worldwide financial crisis.

“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,” Singh said in the Lok Sabha on Monday.

“I wish to assure depositors in our banks that their deposits are entirely safe.” Singh, however, warned that the economy might slow down.

“The financial storm has shaken confidence in the system and precipitated a steep decline in stock markets. It has produced a sharp slowdown in economic activity, with the prospect of a prolonged recession in industrialised countries,” he said.

There is enough capital, but “nevertheless, we must be prepared for a temporary slowdown in the Indian economy”.

Singh said the precise impact of the global financial crisis was difficult to estimate but the economic slowdown in developed countries is likely to have an “indirect impact” on the Indian economy.

Some estimates projected GDP growth to reduce to 7.5 per cent in the current year, but “our effort will be to minimise the negative effect of the financial crisis… to return to the growth trajectory of 9 per cent.”

The Prime Minister said the Reserve Bank of India (RBI) and the Government were carefully monitoring the flow of credit and would ensure that the additional liquidity infused into the system translated into actual credit.

“We will not hesitate to do more, if needed. While the capital adequacy ratios of all our banks are well above the Basel norm and above the RBI stipulated norm, government has promised that it will help banks, which have lower ratios, to access funds to increase the capital risk-weighted asset ratio to 12 per cent,” he said.