Assuring depositors that their money was safe in banks, Reserve Bank of India [Get Quote] Governor D Subbarao said on Saturday the central bank was geared to inject more liquidity into the country's financial system and that there was no cause for anxiety.

"Our banking system is stable and sound. There is no reason for any anxiety or uncertainty," he said while talking to reporters in Washington.

Pointing out that RBI has already taken action to inject liquidity into the system, Subbarao said, "We are monitoring the situation on a continuous basis and stand ready to take appropriate, effective and swift action."

• US sub prime crisis spooks global economy

As regards the Indian banking system, the Governor said the banks are sound, well capitalised and well regulated.

"...Indian banks do not have any direct exposure to sub-prime mortgages. The banking sector, through its overseas branches, has some exposure to distressed financial instruments and troubled financial institutions.

"But this exposure is part of the normal course of their business and is quite small relative to the size of their overall business," said Subbarao, who is in Washington to attend the Annual Meetings of the World Bank and the International Monetary Fund.

Defunct mortgage loans are the primary reason for the financial crisis sweeping the world.

Referring to the turmoil in the stock market, the RBI Governor said, "What we are witnessing is an indirect knock-on effect of the global financial situation. This is only a reflection of the uncertainty and anxiety in the global financial markets."

"The fundamentals of the Indian economy have been strong and continue to be strong. Our forex and money markets have been functioning in an orderly manner", Subbarao said.

The RBI Governor is expected to make his formal statement to the International Monetary and Financial Committee on Saturday given that the Finance Minister P Chidambaram cancelled his visit at the last minute due to developments back home concerning the ongoing global meltdown and the financial carnage unleashed on Wall Street.