India’s Economy Safe to Bank On

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Oct. 13 – Banking on its strong fundamentals the Reserve bank of India's Governor has said that the country may escape the worst consequences of the global financial crisis. He however warned that exports, money, debt and credit markets might be squeezed on account of the US crisis.

"What we are witnessing today in the Indian markets is an indirect, knock-on effect of the global financial situation," RBI Governor Duvvuri Subbarao told a news conference. "We are monitoring the situation on a continuous basis and stand ready to take appropriate effective and swift action," the RBI governor Mr. Subbarao said.

“The equity and forex markets provide the channels through which the global crisis can spread to the Indian system. The other three segments of the financial markets — money, debt and credit markets —could be impacted indirectly,” Mr. Subbarao told the Economic Times. Subbarao, the leader of the Indian delegation, was speaking at the International Monetary and Financial Committee meeting at the IMF, Washington, on Saturday.

According to Mr Subbarao, Indian banks have very limited exposure to the US mortgage market and financial institutions, directly or through derivatives. But he pointed out that the Indian system would be impacted by the global crisis. “Risk aversion, deleveraging and frozen money markets have not only raised the cost of funds for Indian corporates, but also its availability in international markets. This will mean additional demand for domestic bank credit in the near term. Reduced investor interest in emerging economies could impact capital flows significantly. The impending recession will also impact on Indian exports,” he added.