The document discusses the global financial crisis that originated in the US and its impact on India. It provides background on the crisis, including the boom and subsequent bust of the US housing sector due to risky lending practices. It outlines rescue measures taken by the US as well as the effects on India, including declines in the stock market, industrial output, exports, and employment. The response by India included monetary policy easing and fiscal stimulus. Overall, the crisis significantly impacted the Indian economy, though to a lesser extent than other nations.
2. CONTENTS
Introduction.
Background of the crisis.
Rescue measures adopted by US.
Impact of crisis on Indian Economy.
Indian response to financial crisis.
Conclusion
Suggestions
3. introduction
• Recession.
• Sporadically Occurrence
• Uniqueness of each financial crisis
• Basic causes:
-Excessive leveraging of debt
-Miscalculation of Risk
-Rapid Outflow of capital from a
country
-Credit Booms
-Limitless pursuit of Greed
4. Cont.
• Decline of consumer wealth & downturn
of economic activity.
• Prolonged unemployment
5. Initiation of financial crisis
• Also known as the US Meltdown - Worst Financial Crisis
since the Great Depression of 1930s
• According to IMF officials, the losses due to the crisis
amounted to $945 billion in USA alone, but may run into
trillions of dollars when all the countries are considered
together.
• The impact of this crisis was so severe that it led to the
collapse of top investment firms like Lehman Brothers, Bears
Sterns while others such as Citi Group, JP Morgan were
rescued by the government and AIG.
6. BOOM AND BUST OF HOUSING SECTOR
• Between January 2002 and mid-year 2006, housing prices increased by a
whopping 87 percent.
• The boom had turned to a bust, By the third quarter of 2008, housing prices
were approximately 25 percent below their 2006 peak.
7. HIGH RISK LOANS AND LENDING PRACTISES
• The subprime loans were highly risky, as these loans were offered to the high risk
borrowers-- illegal immigrants, person without any job, any assets and any
income. The share of subprime mortgages to total originations increased from 5
per cent ($35 billions) in 1994 to 20 per cent ($600 billions) in 2006.
8. Rescue measures adopted by the u.s
• Rescue plan launched by the Government.
• Purchase of toxic securities called CDO’s.
• Cut Direct Tax and sent refunds to the people to boost
aggregate spending.
• Fiscal stimulus package of $783 Billion.
• New plan investing $1 Trillion for buying toxic assets from
banks.
10. • OFF SHOOT OF GLOBALIZED ECONOMY:
-Increasing integration of Indian economy and its financial
markets increase its risks from these types of international
developments.
• IMPACT ON STOCK AND FOREX MARKET
-Sensex down from 20,000 to less than 9000 in these years.
Stocks have even lost 90% of its value. total net capital flows
decline from U.S $17.3 billion in april-june2007 to US$13.2 in April-
June 2008.
• IMPACT ON INDIAN BANKING SECTOR
-A detailed study undertaken by the RBI in September 2007 on
the impact of the sub-prime episode on the Indian banks had
revealed that none of the Indian banks or the foreign banks, with
whom the discussions had been held, had any direct exposure to
the sub-prime markets in the USA or other markets. However, a few Indian
banks had invested in the collateralized debt obligations(CDOs)/ bonds
which had a few underlying entities with sub-prime.
11. CONT.
IMPACT ON INDUSTRIAL SECTOR AND EXPORT
• It has slowed down industrial sector, with industrial growth declined from 8.1 per
cent to 4.82 per cent .
• In manufacturing sector, the growth has come down to 4.0 per cent in April-
November, 2008 as compared to 9.8 per cent in the corresponding period last year.
• Exports have declined in absolute terms for five months in a row during October
2008-February 2009.
IMPACT ON EMPLOYMENT
• A survey conducted by the Ministry of Labour and Employment states that in the
last quarter of 2008, five lakh workers lost jobs.
• The survey was based on a fairly large sample size across sectors such as
Textiles, Automobiles, Gems & Jewellery, Metals, Mining, Construction, Transport
and BPO/ IT sectors
• Employment in these sectors went down from 16.2 million during September 2008
to 15.7 million during December 2008
12. Cont.
• IMPACT ON INFORMATION TECHNOLOGY
-With the global financial system getting trapped in the
quicksand, there is uncertainty across the Indian software
industry. The us banks have huge running relations with Indian
software companies. A rough estimate suggests that at least a
minimum 30000 Indian jobs could be immediately impacted in
the wake of happenings in the US financial system.
• EXCHANGE RATE DEPRECIATION
-Indian rupee depreciated approximately by 20% against us$
and stood @49 rupees per dollar.
13. Indian response to financial crisis
• Monetary policy measures:
• CRR decreased by four times in October 2008.
• SLR Reduced form 25% to 24%.
• Most banks have surplus cash.
• Fiscal stimulus:
• Fiscal stimulus package
i. Increase in government expenditure
ii. Cut in indirect taxes to boost
consumption and investment demand.
14. conclusion
• From the above argument it can be noted down that the ‘Financial or
Subprime Crisis’ was the shear consequences of ‘greed’ and to
make ‘too much profit’ on the part of Wall Street Firms and
Investment Banks.
• Resulted in loss of employment for lakhs of people, reduction in
export ,foreign exchange depreciation etc.
• The magnitude of the impact is low on our country when we
compare with the rest of the world.
15. suggestions
Monitor Loan Performance carefully and make loans to
high quality borrowers
Governance structure of the risk management system
needs to be improved
--The Role of Risk Managers……..!
Credit rating agencies themselves need to be re-
examined
Global problems require global coordination.
