Govt to avert impact of Lehman, Merrill on Indian economy

BHAVNAGAR: The Union Ministry of Finance is closely monitoring the balance sheets of the arms of troubled entities in US-Lehman Brothers and Merrill Lynch to avert its direct impact on the country's economy, said Secretary Financial Service, Government of India, Arun Ramanathan.

Ramnathsn was in Bhavnagar today to attend the first central board meeting in post-merger of State Bank of Saurashtra (SBS) with State Bank of India (SBI).

Chairman of SBI O P Bhatt, while clarifying about the impact of SBI's exposure of five million dollar in Lehman Brothers said: "The impact of exposure in Lehman Brothers will be marginal as it has been fully provided for and we hope to retrieve back 60-70 per cent of the amount."

The sub-prime crisis that erupted afresh in the US due to filing of bankrupcy by the Lehman Brothers, had adversely impacted the Indian capital markets. Sounding a word of caution, the chairman SBI said.

"We need to be more watchfull on sharp rate of assets build up in the banking sector because the history says non-perfroming assets tend to go up."

Bhatt categorically stated, "since March last year NPAs of SBI have declined, and we as an institution are more carefull now in the wake of financial turbulance."

The SBI chairman ruled out any possible hike in the interest rates in short-term, despite the temporary drop in inflation.

Pegging the expected GDP growth between 7.5 to 8 per cent, Bhatt said, "deposit growth rate has been higher, but liquidity crisis in the market persists."

"I don't know how far RBI is comfortable with the liquidity factor," he said.