India well insulated from US financial crisis, no cause for alarm: Chidambaram

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According to Chidambaram, the public sector banks have virtually no exposure to Lehman Brothers and there is "no cause for alarm."

"Let me assure everyone there is no cause for any alarm that any Indian bank is exposed or is vulnerable like couple of banks that have failed in the United States. There is no such apprehension. All our banks have very strong balance sheets. They are very well regulated and all of them have made full disclosures and RBI is on the top of the situation," Chidambaram said.

On Monday, Wall Street's fourth largest investment bank Lehman Brothers said it has filed for Chapter 11 bankruptcy protection against its creditors even as Bank of America announced that it would be taking over Merrill Lynch in a $50 billion all-share deal. The news had sent Indian investors scurrying for cover and had renewed concerns about the subprime mortgage crisis and credit crunch that have weakened global economies.

"All I can assure you as a Finance Minister is all our financial institutions are on a sound foundation. Both IRDA (Insurance Regulatory Development Authority) and RBI (Reserve Bank of India) have assured me that there is no reason for any apprehension," he said.

After Lehman Brother announced that it would file for bankruptcy protection earlier this week, India's second largest bank ICICI Bank said it had exposure to 57 million ($81 million) of Lehman Brothers senior bonds, though it added that the potential losses were not material. It said it would increase its provision on the debt by about $28 million to cover half of that exposure.

According to ICICI Bank joint managing director Chanda Kochhar, the bank's exposure to foreign markets equal to about 4 percent of its total balance sheet, and it had the capability to handle market movements. ICICI Bank has consolidated assets worth $103 billion.

There were some concerns in India about the fate of Tata-AIG alliance in life insurance and non-life insurance ventures following news that troubled insurer AIG has appealed to the US Federal Reserve for a lifeline to help prevent it from going Lehman's way. On Wednesday, the US government said it would provide AIG with $85 billion emergency loan.

However, the finance minister has brushed aside the concerns, saying the Tata-AIG ventures are "in a sound financial basis."

"We have received a full report from the Tata-AIG management. I have also spoken to the IRDA chairman. The solvency margins are adequate. The Tatas, who own 74 percent of equity, have assured us that all payment obligations will be met. Besides, AIG itself is being bailed out by the Federal Reserve. AIG is not a failed financial institution, so please do not compare the Lehman case with AIG," Chidambaram said.

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