Govt to avert impact of Lehman, Merrill on Indian economy

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

Ramanathan was in Bhavnagar on Friday 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 OP 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 60-70 per cent of the amount."

The sub-prime crisis that erupted afresh in the US due to filing of bankruptcy 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 watchful on sharp rate of assets build up in the banking sector because the history says non-performing assets(NPAs) tend to go up."

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



He 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 added.

Regarding Gujarat, Bhatt said, "the ship breaking industry at Alang is not all that vibrant as it used to be due to some policy issues, and the diamond industry is facing some bottlenecks due to reconfiguration of some of its entitles in South Africa."

The bank is ready to help them but the proposal should come from the industry, he said.

He ruled out merger of its other two non-listed subsidiaries--State Bank of Hyderabad and State Bank of Patiala--at least for another six months.

"Merger is a complicated procedure and there are lots of policy issues with regard to human resources, branches, treasury networks and others. Let the merger of SBS with SBI sail through smoothly, and later on we can go ahead with other proposals," he added.