Sunday, October 12, 2008

World's finacial crisis & Indian Banking

The world is passing through a worst financial crisis since 1932.The International Monetary fund warned that the world's financial system is near meltdown now. France assured that a meeting of the European leaders would be held in Paris to chart out the steps to contain the crisis & to stop triggering most sever global downturn in decades. By the time this article appears Great Britain would launch its biggest retail bank rescue operation when four Britain's largest Banks including Loyd's TSB, Royal Bank of Scotland, Barclay's and HBOS would ask for 35 billion pounds lifeline. If this is the condition of largest Banks of developed countries then what would be the condition of banks of Indian origin?
According to RBI ,fortunately Indian banks are better placed. Why? The Indian banks are conservative and do not indulge in sub prime credit. Indian banks generally do not lend without collateral securities and for that reason banks are relatively safe. But does it mean that Indian banking system will remain unaffected? In today climate of globalisation it is impossible to stand alone in seclusion. We need to be realistic. Melt down may sounds death nails for brokerage fund but depositors would remain generally safe. RBI governor has assessed the situation and identified that in our country the problem would be that of liquidity. The Government and RBI would ensure that enough liquidity is pumped into the economy so that inter banking credits are not effected. The Government would also ensure that companies with robust fundamental would not be allowed face the crisis of fund. One of the victim of the crisis could be Airline segment. Of course the share value may go up or down depending on the stock market situation. The investors would surely be effected in short term but in longer term it is yet possible to regain the strength.

According to me there is no reason to panic unless investors have indulged in over trading. The depositors need not panic & withdraw their funds. The Government India, unless catastrophic situation befall the economy, would see that depositors do not lose out of their savings in the nationalised or private banks. But one thing must be understood clearly that India shall have to face the storm of international financial crisis.Emerging markets like India have over the last few years offered spectacular returns but have always been considered "risky". It is not surprising that at the slightest hint of crisis foreign investors took the flight to safe haven.During last year FII invest around 15 billion dollars in Indian market. Already 9billion dollar left the market. More are prepared to fly out. But that would not really aggravate the situation . The problem would be that of liquidity in India.
One thing is true that we depend more on external market to sell our goods and services. In 129895-96 we wold 9.1% of our goods abroad. In 2007-08 we sold 13.5% of our goods to foreign buyers. This signify that we depends more on external funds to support our growth..We borrowed 29 billion and received 34 billion foreign direct investment. With financial crisis can we expect any help now? AS global recession would hurt us.Can we achieve 9% growth rate? It is impossible. Though Finance Minister is hope full to achieve *% growth I am not.I personally feel if we can achieve 7% growth even we should be considered lucky. This however doe snot mean that we are doomed. Our baking situation is much better . It is unfortunate that ICICI bank is in the eye of the storm. With over 27 million customers and hundreds of thousand investors the bank has been in the news for all the wrong re sons.RBI has already comforted the depositors yet there are people to spread rumours. Yes it is a fact that the rumours of bank's international operation has effected its reputation . This is in spite of the fact that the bank's saving rose to 43,456 crore as against 32,121 crore in the corresponding quarter of last year.

RBI governor reassured from Washington that the money of the depositors in Indian banks are safe.He said that RBI is geared to to inject more liquidity into the country's financial system and that there is no cause for anxiety. He however agreed that the baking sector has some exposure t distressed financial instruments and troubled financial institutions. But that exposure is part of the normal course of their business and is quite Small relative to the size of their overall business. One thing must be kept in mind that only a few bank have exposure in troubled spots and most of the Indian bank are out of it. Yet event in international scenario would effect the country's bank one way or the other and we must face the reality with a pinch of salt.
In today's great financial turmoil the greatest victim is not the money and wealth.It is the mind of people. The crisis of confidence in the mind of people will make or destroy the economy. The bad time does not last long but weak mind can destroy life and organisation, nay economy of country. The Banking runs on confidence. Let us hold hands march forward with head high and build up our strength.

1 comment:

Abhijit said...

Excellent Article.Learnt some new facts.Nice to hear that Indian Banks are safe atleast.

Didn't get the figure in 4th Paragraph
"In 129895-96 "