It started with the sub prime crisis which tiggered out in the U.S.
sub Prime lending crisis was when banks started giving loans for buying propert to the people in U.S. without ensuring their secured return. This Carelessness resulted in defaults, the initial few defaults were overlooked which resulted in a increasing number of defaults. The increase in number of defaults meant that the money that was given as loans by banks has sunk. This created a Bad debt for the banks and the amount of bad debt was so big that it lead to huge losses to big banks.
This sub-prime Crisis was jus a trailer and the big picture was yet to be seen.
The sub prime crisis showed its effects after a year which can be seen in the crash down of the U.S. economy.
The losses to the U.S. banking system has gone up to $1.4 trilion ( source: IMF), the figure is still rising. The crisis has jus hit the west coast of India till now. The sensex rose to about eight folds since 2003 to the begining of 2008, but now it is down by 40% from its peak. (ET).
First effect has been seen on the sensex. The banking system is also influenced by the global finacial crisis.
" The Collapse of Lehman Brothers can lead to some tightness in credit in India, but the government will provide coordinated funding where needed. " - Finance Minister , P. Chdambaram.
The effect in India is yet not that pronounced as it has been in countries like U.K. , Belgium , Ieland, Spain, japan. This can be due to India's proximity to the U.S. market as well as its closed economy.
Before the GFC hit the Global Market , india was facing a problem of inflation , rising cost of living, increase in crude oil price.
This has been tackled by the RBI, It has reduced the Repo Rate from 9% to 7.5%. This cut has injected 1.25lac crore rupees in the indian market to ease liquidity.
The inflation has eased a bit.
Despite the GFC & its impact, India is seen as a growing and promising economy. Indian emerging markets has attracted more importance from all over the world.
"The Asia-Pacific region, particularly India, is one of the attaractive places for grwoth. There is a lot of wealth created in India."
-John Thain, Chairman & CEO, Merrill Lynch, May 2008
"We have been active in advisory, and in private equity (in India), where we have invested over a billion dollars over the past year… the thing that attracts us is not the size of an economy but the growth of an economy”
- Lloyd Craig Blankfein, Chairman & CEO, Goldman Sachs, November 2007
“Our management has told me that, in a very controlled, healthy and gradual way, they would like to significantly expand the Asian operations”
- David Martin Darst, MD, Morgan Stanley, September 20, 2008
