The Global Financial Crisis Of India - 1441 Words

Introduction: The Global financial sector had seen one of the worst Global economic meltdown of staggering proportions. The root cause of the problem was substandard loans offered to a large number of customers with inadequate income by the United States Mortgage market. This crisis was commonly known as the Sub-prime crisis. These sub-prime mortgages were packaged and traded into securitized paper investments and were sold by the major financial institutions across the globe. Subsequently, these investments became non performing assets and infected the worldwide financial markets sparing not even the biggest and established financial firms. Globalization in the early 20th century ensured that the Indian economy and the financial markets†¦show more content†¦The main reason for such a hit was because of its rapid and growing integration in the world economy. The Indian banking sector was able to shave off much of the global meltdown. There were several reasons why this was possible, inclu ding a conservative approach by Indian banks on providing loans, heavy focus on cost cutting, adhering to the strict guidelines of the Reserve bank of India(RBI) and most importantly exploring only new markets which were immune to Global meltdown. In fact, it was hard to anticipate the overall effect that the crisis would have on the Indian economy. This was because there was no direct exposure of Indian banks to subprime mortgage assets or to any failed institutions. The growth of the Indian banking system was largely because of domestic consumption and investment. Even though there was little effect on the Indian financial and banking sector because of their limited exposure to troubled assets, prudent policies of RBI and low presence of foreign banks in the Indian market, there was a change in the market condition following the collapse of Lehman Brothers. With regards to the crisis, India saw a reversal of capital inflows due to heavy sell off by Foreign Institutional Investors which in turn made a downward impact on the domestic stock market. This reason coupled with limited access to other external funds exerted tremendous pressure on the FX market since the dollar liquidity was hampered. The chain reaction followed after this and the