FM assures markets are sound and attractive for investors

Finance Minister P Chidambaram today said the Indian markets are sound and attractive for investors. “We are watching the situation round the clock,” he said outside North Block, a short while after Sebi chairman CB Bhave had said the regulator is closely monitoring markets and has verified with the stock exchanges that there are no settlement issues. “Yesterday’s settlement went through smoothly and it is expected that the settlement tomorrow also will be smooth. The clearing and settlement mechanism of the stock exchanges is a time tested mechanism which has been tested in times of great volatility,” Bhave said in a statement first released at 10.30 am today.

Bhave, economic affairs secretary Ashok Chawla and other officials of the Ministry of Finance were attending a seminar organised by the NIPFP early today when they left in a rush to attend an impromptu meeting at North Block called by the FM, said official sources.

Immediately after, Bhave briefed reporters saying that at present, the rules regarding short sale are that institutions are allowed to short sell only if they have borrowed the stock on the stock exchanges. “At present, there are no volumes in the borrowing-lending market. Therefore, there is no concern that institutions may be short selling. Short sales by retail are permissible but the stock has to be delivered on a T+2 basis. If any entity delivers short, the position is auctioned,” he said.

Bhave further warned that if Sebi finds that any institution has violated the short sale rule, it will take the most stringent action against such entity, if any.  “At present, there are no indications that such a violation has occurred,” he added.

The Finance Minister was also supposed to brief the press but then chose not to do it till early afternoon, when he spoke to some reporters outside North Block. In those comments, he said: “Indian banks are well capitalised and regulated. FIIs are not selling all the time. We will be greatly helped if bailout package is quickly approved by US Congress.”

It is clear that the Indian financial sector authorities are coordinating their response to buttress market confidence and clamp down on rumours. As part of that exercise, the Reserve Bank of India today clarified that ICICI Bank has sufficient liquidity, including in its current account with the Reserve Bank of India, to meet the requirements of its depositors. The Reserve Bank of India is monitoring the developments and has arranged to provide adequate cash to ICICI Bank to meet the demands of its customers at its branches and ATMs.

The RBI statement came after reports in some sections of the media that based on rumours regarding the financial strength of ICICI Bank, depositors are withdrawing cash at its ATMs and branches in some locations.“ICICI Bank and its subsidiary banks abroad are well capitalised,” the RBI statement added.