impact of global meltdown on banking sector

8/9/2019 IMPACT of GLOBAL Meltdown on Banking Sector

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K.J.SOMAIYA COLLEGE OF

ARTS AND COMMERCE


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IMPACT OF GLOBAL MELTDOWN ON

BANKING SECTOR


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Group Members(S.Y.BMS)

Taral.Mandaliya 25

Raunak .Pradhan 34Ajinkya.Kedar..58

Chaitali.Sawant ..57

Nikhil.Puri ... 33

Shadab.Qureshi..36


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Acknowledgement It gives us great pleasure to present before you a

project on Strategic Management IMPACT OF

GLOBAL MELTDOWN ON BANKI

NG SECTOR. As aBMS student we are honored to undergo a project workat an undergraduate level.

We are thankful to the library for helping in finding out

the information about the topic. We would to extend our sincere thanks to our prof.

Mrs.Pramila Patil & the college for their valuableguidance in the subject.


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What Is Recession ?What Is Recession ?

A Recession is a contraction phase of the

business cycle.

National Bureau ofEconomicResearch

(NBER) is the official agency in charge ofdeclaring that the economy is in a state of

recession.


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They define recession as :

significant decline in economic activity lasting more

than a few months, which is normally visible in realGDP, real income, employment, industrial

production, and wholesale-retail sales.


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WhatWhat

CausesCausesRecession ?Recession ?

WhatWhat

CausesCausesRecession ?Recession ?


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An economy typically expandsfor 6-10 years and

tends to go into a recessionfor about sixmonths to 2years.

A recession normally takes place when consumers

loose confidence in the growth of the economy andspend less.

This leads to a decreased demand for goods and

services, which in turn leads to a decreaseinproduction,

lay-offs and a sharp risein unemployment.

Investorsspend less as they fear stocksvalues will

fall and thus stock markets fall on negative sentiment.


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World Economy

The Global Economy


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Felt a need to Preserve capital. Therefore

Started tightening credit ,

Started restricting lending to the Indianconsumer and businesses.

Since thenLoans became difficult to come by banks,

Bank cut Credit card limits.

Indian consumers significantly reducespending.


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During the weekend of September 14-15,

Lehman Brothers declared bankruptcy

after failing to find buyers.


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Bank of America agreed to purchase Merrill

Lynch, & consortium of 10 banks created an

emergency fund of at least$70 billion todeal withthe effects of Lehman's closure.


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Another bank

failure occurred

on September25 when JP

Morgan Chaseagreed to

purchase the

banking assetsofWashington

Mutual


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The year 2008 as ofSeptember 17 has seen 81public corporations file for bankruptcy in theUnited States.

Lehman Brothers being the largest bankruptcy inU.S. history also makes 2008 a record year in terms

of assets with Lehman's $691 billion in assets allpast annual totals.

The year also saw the ninth biggest bankruptcywith the failure ofIndy Mac Bank.

Other Famous who got bankrupt were, fannies

mae & Freddie Mac, aig, bearstearns etc.


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Banking sector!


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Indian banks are facing through a tough time ofliquidity crunch. Lehman Brothers had invested a

great amount in the stocks ofIndian banks that haveinvested in derivatives.

A sudden fall in the economy directly affectedLehman and Merill, eventually forcing them to file a

bankruptcy.

Falling down of Lehman had a great impact on the

leading international bank, ICICI Bank, a bank that had

invested in Lehmans bonds. This meltdown even have

covered the Axis Bank but not to a great extent.


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Lehman Brothers had signed a partnership with someof the real estate companies like Peninsula Land Ltd

and DLF Assets. These have also suffered a heavy loss.

With all this, the Indian Sensex swung violently

downward, mainly because of the foreign companiespulling out credits to meet high inflations.

Central banks have worked to improve liquidity butare charging higher credits. The interest rates have

drastically increased from 11.5% to nearly about 16%.


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On the issue Mr. Manmohan Singh suggested-

A coordinated fiscal stimulus by countries that are in aposition to do so would help to mitigate the severity

and duration of the recession.

It would also send a strong signal to investors around

the world. resort to fiscal stimulus may be viewed as

risky in some situation, but if we are indeed on the

brink of the worst downturn since the greatdepression, the risk may be worth taking, he added.


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CORRECTIVE

STEPS

TAKEN TOCHECK

RECESSION


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RBI needs to neutralise the outflow of FII

money by unwinding the market

stabilisation securities that it had used to

sterilise the inflows when they happened.

This will mean drawing down the dollar

reserves which is important at this hour.


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Also, the government should try and

improve liquidity , while CRR and SLR

must be cut further.

Indian Companies have to adopt a multi-pronged strategy, which includes

diversification of the export markets,

improving internal efficiencies to maintaincost competitiveness in a tight export

market situation .


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Policy rate (02-jan-2009)


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Reserve Ratios (2008)

Cash Reserve Ratio 5%. Statutory Liquidity Ratio 24.0%.

Lending or Deposit Rates (2008)

Prime Lending Rate 12.75%-13.25%. Saving Bank Rate 3.5%Deposit Rate 7.50%-10.75 .


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Current scenario - Impactof

recessiononbanking sector Recession has grabbed almost all the

organisations of the world.

Several people have lost jobs - facing

the financial problems.

Government - doing best to come out ofthe problem.

Banks are providing business loans at

low rate.


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Government - providing moneypackages to organisations.

IfI talk about India, here the situation isstill satisfactory if compare it with

other countries of the world. Reserve bank ofIndia (RBI) has

decreased the rate of interest.

SBI and ICICI are also providingdifferent types of loans at a low rate ofinterest.


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CONCLUSION

It is now for the Banks and the big

industries to fulfill their share of

responsibilities and ensure that themeasures taken are effective. They need

to move hand in hand with the

government.


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Time and again, the Prime Minister hasbeen assuring the people that despite the

international environment the country has

the capacity, ability and resilience to copewith the present global crisis.


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Sources

www.google.com.

www.wikipedia.com.Business Times

Economic Times

impact of global meltdown on banking sector

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