Despite rate-cut pill, global flu batters Sensex

Almost immediately after the markets opened, the Sensex plunged by over 1,000 points. The Reserve Bank of India (RBI) intervened to ease liquidity in the system by cutting the cash reserve ratio (the portion of deposits banks have to keep with the central bank) by another one per cent, thus taking the total reduction this week to 1.5 per cent, and releasing Rs 60,000 crore (over $ 12 billion) into the funds-starved system. In the backdrop of tight liquidity, the finance ministry cancelled a Rs 10,000 crore Government borrowing plan.

Finance Minister P Chidambaram constituted a group comprising top bankers headed by Finance Secretary Arun Ramnathan to advise the government on liquidity requirements within a week. He also assured cash-strapped markets that the government would inject more funds into the system in the next 10-12 days through the supplementary demands for grants, which will come up for approval before Parliament later this month.

The new RBI measures and assurances by the government did not have much impact on the market, though. The BSE Sensex ended down 800.51 points or 7.07% to 10,527.86. The index lost 16 per cent during the week, its worst performance since 1990. It is now 10,678.91 points or 50.35% below its all-time high of 21,206.77, struck on January 10, 2008.

ICICI Bank plunged as much as 28 per cent to its lowest in almost four years, before trimming losses to 19 per cent after the bank’s joint managing director Chanda Kochhar said the bank has sufficient liquidity and it has never used rupee funds for its international growth initiatives.

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