Indian banks have little exposure to distressed assets: RBI

Reserve Bank of India Governor D Subbarao has said that the Indian banks have some exposure to the distressed financial instruments, but this is very small compared to the overall size of the business.


"...Indian banks do not have any direct exposure to sub-prime mortgages. The banking sector, through its overseas branches, has some exposure to distressed financial instruments and troubled financial institutions.

"But this exposure is part of the normal course of their business and is quite small relative to the size of their overall business," Subbarao said in Washington.

The RBI Governor, who is attending the Annual Meetings of the Bank and the International Monetary Fund, said in a statement, "The fundamentals of the Indian economy have been strong and continue to be strong. The Indian banking system is sound, well-capitalised and well-regulated. Our forex and money markets have been functioning in an orderly manner."



He is expected to make his formal statement to the International Monetary and Financial Committee on Saturday morning given that the Finance Minister P Chidambaram cancelled his visit at the last minute due to developments back home concerning the ongoing global meltdown and the financial carnage unleashed on Wall Street.



"What we are witnessing today in the Indian markets is an indirect, knock-on effect of the global financial situation. This is only a reflection of the uncertainty and anxiety in the global financial markets," he added.



The Reserve Bank of India has taken action to inject liquidity into the system.



"We are monitoring the situation on a continuous basis, and stand ready to take appropriate, effective and swift action."



"...I want to reiterate that our banking system is stable and sound. There is no reason for any anxiety or uncertainty," he added.

No country immune to global financial turmoil: India

Observing that in a globalised framework no country can be immune to what is happening in the world financial markets; India has said recessionary trend is "slowly becoming a reality".


“..We are not too sure about the full magnitude of the problem (the global financial crisis). Despite some incipient signs of cooling, inflationary pressures arising out of elevated food and fuel prices have not fully subsided.”

"The recessionary trend is slowly becoming a reality with the twin threats of the financial markets crisis and consumer anxiety," said a statement by India's Finance Minister P Chidambaram to the International Monetary and Financial Committee (IMFC) meeting in Washington.

The statement was tabled by the country's central bank governor D Subbarao. Chidambaram had cancelled his plans to attend the meet at the last minute.

"We are meeting in Washington at a time when the global economy is under unprecedented strain. The financial sector turmoil that originated in the sub-prime mortgage sector in the US is now unfolding itself into a full-blown crisis with multidimensional ramifications across many developed economies and spillovers to the rest of the world," India said.

Pointing out that the present crisis gives a chance to look back and analyse what went wrong, the statement said growth in emerging economies would be affected due to the crisis.

"...crises do give us an opportunity to quickly take stock of what went wrong and to act... emerging market economies will also be affected as their growth slows to 6.9 percent in 2008 and further to 6.1 percent in 2009."

RBI Governor says bank deposits are safe

Assuring depositors that their money was safe in Indian banks, Reserve Bank of India Governor D Subbarao on Saturday said that there was no cause for anxiety and pointed out that Indian banks do not have any direct exposure to sub-prime mortgages.


Although Subbarao added that the banking sector, through its overseas branches, has some international exposure but it is quite small relative to the size of their overall business.

He said that the central bank was geared to inject more liquidity into the country's financial system.

IMF in global 'meltdown' warning

The world financial system is teetering on the "brink of systemic meltdown", the head of the International Monetary Fund (IMF) has warned in Washington.

Dominique Strauss-Kahn said rich nations had so far failed to restore confidence, but he endorsed a new action plan by the G7 group.

He also said the IMF was ready to lend to countries in dire need of capital.

The 15 eurozone leaders will meet in Paris later to try and establish a common approach to the markets crisis.

French President Nicolas Sarkozy and German Chancellor Angela Merkel said they would present a number of proposals at the summit to ease the credit freeze that has caused the collapse of several leading international banks.

But after meeting in Paris on Saturday, the two leaders said the summit would not result in a joint financial rescue fund for Europe, in the model of a $700bn rescue by the US government.

French Economy Minister Christine Lagarde said the eurozone leaders would discuss the possibility of guaranteeing interbank lending and put "meat" on the "skeleton" of a five-point plan by the G7 group of most industrialised nations to resolve the crisis.

Intensifying concerns

Mr Strauss-Kahn was speaking in Washington after talks with US President George W Bush, G7 finance ministers and the World Bank.

Earlier, G7 ministers had released the five-point plan to free up the flow of credit, back efforts by banks to raise money and revive the mortgage market.

"Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," said Mr Strauss-Kahn.

He later told a news conference: "The first co-ordination between advanced countries and the rest of the world is now on track."

The IMF chief's strong words reflect a belief that the global financial crisis can be contained, says the BBC's economics correspondent Andrew Walker in Washington.

Mr Strauss-Kahn was joined at the White House by finance ministers from the US, Canada, France, Germany, Britain, Italy and Japan, as well as World Bank President Robert Zoellick.

Following talks with the economic leaders, Mr Bush also pledged co-ordinated action, saying it was serious global crisis which demanded a serious global response.

Panic selling

The meeting came a day after Asian, European and US markets continued to panic sell despite rate cuts and cash injections by central banks, amid widespread fears of a global recession.

Late on Friday, US Treasury Secretary Henry Paulson said the US planned to invest directly in banks for the first since the 1930s, following a similar UK programme of partial bank nationalisation.

The G7 had earlier not ruled out adopting another part of the British plan - to guarantee borrowing between banks - as they issued their plan in Washington.

The G7 also left the door open to further reductions in interest rates, which six central banks this week jointly cut by half a percentage point.

But our correspondent says there is some disappointment that the G7 plan lacks detail.

Ahead of the emergency summit of eurozone leaders, UK Prime Minister Gordon Brown will hold talks with Mr Sarkozy.

Chancellor Merkel said governments must "redirect the markets so they serve the people, and not ruin them".

The heads of the EU's four biggest economies - Britain, France, Germany and Italy - held a first crisis summit last week, but were split over the need for a common plan.

Analysts say another week of plunging stock markets has focused minds and the real test of this weekend's scramble by world leaders to shore up the international financial system will come once markets reopen again on Monday.

Venezuela shuts down McDonald's

Venezuela's government has shut all branches of restaurant chain McDonald's for 48 hours, citing tax irregularities, officials have said.

The head of the country's tax agency, Jose David Cabello, said the chain had inconsistencies in its accounts.

The 115 branches in Venezuela were closed from Thursday to Saturday.

Venezuela's President Hugo Chavez is a fierce US critic and last month was at the heart of tit-for-tat US-Latin American diplomatic expulsions.

Oil battle

Since winning elections 10 years ago, Mr Chavez has increased taxes and often temporarily shuts firms accused of failing to pay.

The government recently temporarily closed the offices of Pepsi, which is operated by a local consortium.

Mr Chavez has also taken on US oil firms, nationalising their Venezuelan operations and pursuing a legal battle with Exxon Mobil.

In last month's diplomatic exchange, Bolivia and Venezuela expelled their US envoys, accusing Washington of trying to oust Bolivia's government.

Washington responded by throwing out envoys from Bolivia and Venezuela and freezing the assets of three aides to President Chavez.

Honduras refused the credentials of a new US ambassador, postponing his appointment.

Bush plea for unity amid crisis

US President George W Bush has urged the world's wealthiest industrial nations to avoid any unilateral action in the current global economic crisis.

Speaking at the White House, he said countries must take co-ordinated action to tackle the "serious global crisis".

"We must ensure the actions of one country do not contradict or undermine the actions of another," he said.

He spoke after crisis talks with Group of Seven chiefs and the International Monetary Fund (IMF) in Washington.

"All of us recognise that this is a serious global crisis and therefore requires a serious global response," Mr Bush said, announcing no new policies.

"We will stand together together and address this threat to our prosperity," he added.

The US president spoke after talks with Group of Seven (G7) finance ministers from Britain, Canada, France, Germany, Italy, Japan, as well as IMF chief Dominique Strauss-Kahn and World Bank President Robert Zoellick.

Amid widespread fears of a global recession, Asian, European and US markets continued to tumble on Friday despite rate cuts and cash injections by central banks.

Late on Friday, US Treasury Secretary Henry Paulson announced the US would invest directly in banks for the first time since the 1930s, following a similar UK move.

The G7 finance ministers had earlier announced a five-point plan in Washington to protect major financial institutions.

They said they would free up the flow of credit, support efforts by banks to raise money, and revive the mortgage market.

The BBC's economic correspondent in Washington, Andrew Walker, says the G7 communique was short on detail, reflecting different views among the finance ministers.

He says a British plan to guarantee borrowing between banks is not explicitly contained in the communique, but is at least implied as an option.

The G7 statement also kept open the possibility of further cuts in interest rates and taxes.

Leaders of the eurozone countries are meanwhile scheduled to meet in Paris on Sunday.

India, US sign landmark 123 Agreement

India and the US have operationalised the "path-breaking" bilateral nuclear deal as they signed the 123 Agreement in Washington, with New Delhi insisting that the accord is "legally-binding" on both sides.


External Affairs Minister Pranab Mukherjee and US Secretary of State Condoleezza Rice put the final seal on the agreement at an impressive ceremony held in the Benjamin Franklin Room of the State Department, culminating a crisis-ridden process initiated on 18th July 2005 in Washington during Prime Minister Manmohan Singh's visit for talks with US President George W. Bush.


"Both India and the US Administration have now completed all our internal procedures to be able to sign this path breaking agreement," Mukherjee said after signing the agreement, paving the way for entry of American companies into the Indian nuclear market after three decades.

"Today is an important day for India-US relations, for global energy security and for our common endeavour to promote sustainable development while addressing environmental challenges," he said at the ceremony held at the State Department.

Noting that the agreement reflects a "careful balance of rights and obligations", he said "its (agreement's) provisions are now legally-binding on both sides once the agreement enters into force."


This comment assumes significance since the US had said that the contents of the 123 Agreement were a political commitment and not legally binding, triggering concerns in India over aspects like promises on nuclear fuel assurances.


He said the importance of the Agreement is that it was the first step to civil nuclear cooperation and trade between India and the US.


"It is also the first step to India's cooperation with the rest of the world in civil nuclear energy," he said.

He said the signing of the agreement has brought to fruition three years of "extraordinary effort" by both India and the US and it was "one more visible sign of the transformed relationship and partnership" that the two countries are building.

"We now look forward to working with US companies on the commercial steps that will follow to implement this landmark agreement," Mukherjee said.


The External Affairs Minister described the agreement as the first step to India's cooperation with the rest of the world in civil nuclear field.


By reinforcing and increasing the nuclear element in the country's energy mix, which is vital to sustain India's growth rate, nuclear power will directly boost industrial growth, rural development and help expand every vital sector of the country's economy, he said.


"It enables India to respond with her global partners to the challenges of climate change and global warming by strengthening her own economic growth and sustainable development," he said.


Mukherjee said the wide-ranging initiatives announced by Prime Minister Manmohan Singh and President George W Bush in July 2005 and March 2006 have led to a transformed relationship between the two countries.


Praising Bush, Rice and the American Congress besides the Indian-American community for making the agreement a reality, the External Affairs Minister said New Delhi looks forward to working with Washington in other fields as well.



He listed these as combating terrorism, containing and fighting pandemics, climate change, ensuring food security, cooperating in disaster relief operations and other regional and global initiatives.

Russia approves $86bn bank rescue

Russia's lower house of parliament, the Duma, has approved a raft of measures worth $86bn (£51bn) to assist banks hit by the credit freeze.

The government will make $50bn available to banks and firms that need to refinance foreign debt. The rest will be available as loans to banks.

The package is designed to restore confidence in Russian banks and revive shares, which have seen steep falls.

Trade on Russian stock exchanges has been suspended since Wednesday.

Trading in the Moscow Interbank Currency Exchange (Micex) index and the Russian Trading System (RTS) exchange was stopped after falls of more than 10% in the first hour of trade on Wednesday.

The Micex was scheduled to reopen on Friday.

But fears that Russian shares would be dumped after a climate of fear saw a rout across European and Asian stock markets, prompted the order from the regulator, analysts said.

"The RTS and MICEX will not be able to escape contagion from the rest of the world," Uralsib strategist Chris Weafer said.

Liquidity problems

The falls in Russia and elsewhere have been blamed on panic selling by global investors fearful of a deep worldwide recession.

Russian shares were also hit in August amid concerns about the conflict between Russia and Georgia.

The steep decline in oil prices has also taken its toll with energy firms accounting for about two thirds of the Russian stock indexes.

Analysts say the falls have been exaggerated as a number of Russian oligarchs have faced margin calls on loans that they took to expand their business interests.

The forced sale of shares they had used as collateral for the loans has played a part in depressing stocks.

Oil plunges to 13-month low on global slowdown

Oil prices have been plunged in another violent sell-off on Friday, briefly tumbling below USD 78 a barrel as investors grow more pessimistic about the prospects for resolving a mushrooming global economic crisis.


A barrel of oil hasn't been this cheap in 13 months. The steep losses came as Wall Street extended its staggering decline for an eighth straight day and headed for its worst weekly drop ever.



The Dow Jones industrial average was down more than 500 points in mid-afternoon trading. "Oil is mirroring the stock market right now.



There's a total lack of confidence. It's fear driving more fear," said Phil Flynn, energy analyst at Alaron Trading Corp. in Chicago.



Light, sweet crude for November delivery fell USD 8.01 to USD 78.61 a barrel on the New York Mercantile Exchange, after earlier falling to USD 77.28, its lowest level since 11th September 2007.



Crude has now lost about 47 per cent since hitting a record USD 147.27 on 11th July, tumbling as a deepening credit crisis caused by the subprime mortgage fiasco wreaks havoc around the globe and drives down energy demand.



Investors have shrugged off an array of market-stabilizing efforts by world governments, including a USD 700 billion US financial rescue plan, several bank bailouts and a coordinated interest rate cut by the Federal Reserve and central banks around the globe.



Oil market traders were also fixated on signs of falling energy demand around the globe.



The International Energy Agency on Friday cut its global oil demand forecasts for this year and 2009, pointing to the worsening economic conditions and the tight credit supply.

G7 nations pledge to fight crisis

Finance ministers from leading industrialised nations have pledged action to tackle the financial crisis.

The G7 nations issued a five-point plan of "decisive action" to unfreeze credit markets, after a meeting in Washington.

Widespread fears of a global recession caused Asian, European and US markets to tumble on Friday despite rate cuts and cash injections by central banks.

The US also said it would invest directly in banks for the first time since the 1930s, following a UK move.

As well as the Washington meeting of the G7 - which comprises the US, Japan, Britain, Germany, France, Italy and Canada - the International Monetary Fund (IMF) will hold talks in the US capital over the weekend.

Leaders of the eurozone countries are also scheduled to meet in Paris on Sunday.

'Protect savers'

After Friday's G7 meeting, US Treasury Secretary Henry Paulson said the group had a clear vision of what needed doing, and was working together to stabilise the world's panic-stricken money markets.

"We are squarely focused on the immediate need to stabilise our financial market and recognise that investor confidence is critical to restore liquidity and enhance the stability of our financial system," he said.

The five-point plan is intended to protect major banks and financial institutions from failure and ensure they can raise capital from public and private sources.

It includes steps to unfreeze the flow of credit and protect savers, although it did not reveal any specific measures.

It pledged to take "decisive action and use all available tools" to support financial institutions.

It also vowed to take all necessary steps to unfreeze credit and money markets; ensure banks can raise capital from public as well as private sources; and ensure national deposit insurance and guarantee programs are robust.

Mr Paulson said the US was working closely with China and Japan - both of which hold large amounts of US treasury bonds - to resolve the crisis.

He added that the US government would buy bank equity.

"We're going to do it as soon as we can do it and do it effectively," Mr Paulson said.

On Wednesday, the UK announced it would set aside £50bn to buy shares in the nation's banks.

While the G7 statement identifies the main areas requiring urgent attention, it is short on detail, says the BBC's Andrew Walker in Washington, adding that much will now depend on how each government takes its own plans forward.

Panic-stricken markets

Earlier on Friday, US President George W Bush said his government would continue to act to resolve the crisis.

Speaking on the White House lawn, Mr Bush said the recent market turmoil was being driven by "uncertainty and fear".

But he said the US authorities had a comprehensive strategy and a wide range of tools that they were using "aggressively" to fix the problems.

Mr Bush defended last week's rescue package, saying it was big enough, but stressing it would take time to have its full impact.

But volatile market conditions continued despite moves on Wednesday by six of the main central banks to cut interest rates by 0.5% and a separate move by China's central bank to cut rates by 0.27%.

Wall Street has lost a fifth of its value in the past 10 trading days, suffering one of its biggest weekly falls since the Dow Jones index was created 112 years ago.

Markets in France, Germany and Britain plunged to end Friday between seven and nine percent lower.

Shares in Asia also closed down sharply, with Japan's main Nikkei index suffering its biggest one-day drop since the 1987 stock market crash.

As panic mounted, there were trading suspensions in several countries including Russia, Austria, Iceland, Romania, Ukraine, Brazil and Indonesia.

Amid the gloom, the British pound tumbled to a five-year low against the US dollar and oil prices plummeted to a one-year low.