Q: What are your thoughts on the kind of global policy action we saw all through last week and what you think might be the next step if there is some more coordinated action?

A: I am actually very encouraged by what has happened in Washington over the last week and then what is likely to happen in Europe in the next day or two in terms of a coordinated as well as a very robust set of policy actions which have been derived. If these actions are implemented well, which I hope they will be, we are on our road back to recovery.

Q: Do you expect over the next couple of days the US and European Union will come in and guarantee inter-bank loans so that the credit market can thaw there because that’s something that they have not done yet?

A: I think they will. The inter-bank lending is all clogged at the moment and unless that is freed up, the recovery becomes very difficult and this liquidity in inter-bank market is essential and this will get done.

Q: Do you think a lot more new fresh liquidity will be inducted or injected into many new banking entities, which haven’t had direct capital infusion already in return for equity?

A: I think at the moment they are talking about, even in the US, getting ready to inject equity into financial institutions should it become necessary. But being prepared with that kind of action step really takes away half the need of doing anything. So, markets will get reassured that the regulators and the financial authorities are there to further capitalise the financial institutions, should it become necessary. That, in my judgement, will make it less necessary for that action to take place.

Q: There was a degree of panic last week both in the stock market and for depositors about some banks and what might be happening over there. What is your own assessment of the Indian banking industry and whether we might have these kinds of these accidents––for lack of a better word?

A: I think India has one of the strongest and most well-capitalised banking systems. We are also very fortunate to have an economic leadership team which is outstanding. We are seeing an inferno out there and even though we do live in a very strong house, we need to take more preventive measures and proactive measures to ensure that we are further safeguarded from the ill-effects of what is happening out there.

Q: I believe you have indicated that you see this as a more serious crisis than the one we had in 1997. How long do you think the entire process of cleaning the system out will take?

A: In 1997, I was in Seoul, Korea on Christmas working on an International Monetary Fund-led recapitalisation package and the panic and fear on the streets of Seoul that day was so serious that as far as we are in India concerned, there is nothing as compared to that. Korean women were queuing up to donate their gold jewellery to the government to save the economic system. So, as far as I conceive, we are going through some trying times, and of course, stock market has taken a big beating. However, fundamentally, the economy is very strong and we will see growth this year.

My only request to the bankers is that they should call up their top ten customers and tell them draw on their unutilized credit lines. The bankers should say, “We have plenty of money to lend you; will love to lend you money.”

Q: What do you expect to see in terms of policy measures if any from the Indian banking system now? We have seen some Cash Reserve Ratio (CRR) cuts what is your specific expectation over the next few weeks?

A: I think there will be further interest rate cuts. The authorities will be ready to extend deposit guarantee. They may even go to the extent of guarantying some of the money market funds. Also, I expect that they will provide more funding support to the overseas branches of Indian banks by shifting some of the deposits from our foreign exchange reserves. Those kind of policy actions would further ease the strain that the banking system is having as well as it will, in general, more confidence amongst the depositors who are seeing all the global bad news and getting quite worried.