FM takes more steps to combat crisis; inject additional cash

FM takes more steps to combat crisis; inject additional cash

New Delhi: Continuing the fight against the ripple effects of global financial meltdown, finance minister P Chidambaram on Wednesday announced more steps to inject cash into the system and strengthen the banking sector, and doubled FII investment limit in corporate bonds to $6 billion.

“At the request of government, RBI has agreed to provide a sum of Rs25,000 crore to lending institutions immediately (against the farm debt waiver scheme)," he said in a statement minutes after the stock market closed with losses of nearly 700 points, reversing the two-day positive trend.

While maintaining that Indian banks were well capitalised with a CRAR (capital and assets banks are required to maintain against risks) of more than 10%, he said: “Nevertheless, the government has decided to provide the banks access to finance in order to raise CRAR that are now between 10-12% to reach 12% by a suitable date in future.

“The details of the capitalisation scheme are being worked out." He pointed out CRARs of Indian banks were well above the BASEL norm of 8% and RBI-stipulated norm of 9%.

In the face of the flight of capital from the stock markets, a major factor that led to a meltdown at the bourses, Chidambaram doubled the investment limit for FIIs in corporate bond market to $6 billion.

“(Market regulator) Sebi has informed me that it’ll address any request for relaxation in the proportion of investment in equity and debt required to be maintained by an FII under current regulation," he said.

Before the trading started on Wednesday morning, Chidambaram had said in a statement that “government and RBI are agreed on the measures that are to be taken immediately," while informing reporters that RBI governor D Subbarao had gone to Mumbai to work out the details of the measures agreed upon.