Deposits safe, no bank will fail: Singh

Assuring the public that their deposits in the country8217;s banks were 8220;entirely safe8221; and 8220;there should be no fear of failure of any bank"

Assuring the public that their deposits in the country8217;s banks were 8220;entirely safe8221; and 8220;there should be no fear of failure of any bank8221;, Prime Minister Manmohan Singh today admitted that the financial crisis and the economic slowdown in the developed countries was likely to have an 8220;indirect impact on the Indian economy8221; and that the country needed to be 8220;prepared for a temporary slowdown in the Indian economy8221;.

On the slowdown, Singh, while making a suo motu statement in the Lok Sabha, said that the precise impact was difficult to estimate at this point since the depth and duration of the global slowdown remain uncertain. 8220;Some estimates project GDP growth to decelerate to 7.5 per cent in the current year. The most pessimistic estimates place it at no less than 7 per cent. Our effort will be to minimise the negative effect of the financial crisis and, once the global situation stabilises, to return to the growth trajectory of 9 per cent.8221;

He said that the Indian banking system was not directly exposed to the sub-prime mortgage assets. 8220;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 failure of any bank. In particular, I wish to assure depositors in our banks that their deposits are entirely safe.8221;

Stating that the liquidity position in the financial system had improved considerably as a result of a number of steps taken to address problems in the country, Singh said that the government had arranged to provide, in advance, a sum of Rs 25,000 crore to the banking system under the debt waiver and debt relief scheme. He added that the limit of investment by foreign institutional investors in corporate bonds was increased from US3 billion to US6 billion.

The Prime Minister told the House that suitable advisories have been issued by the RBI and the Ministry of Finance to banks to ensure that borrowers are provided adequate credit, including export credit and working capital. 8220;Banks must also provide adequate funds in the form of investment or credit to mutual funds and NBFCs who, in turn, lend to industry, trade and business8221;, he added.

Pointing out that the Wholesale Price Index had declined in the last three weeks, Singh said that although the current rate was still high, the movement in the level of prices showed a clear deceleration in the current momentum of inflation. 8220;We expect a further reduction in the Wholesale Price Index in the next two months,8221; he said.