0670088528 (N) by Sushil Kumar Sayal

Author:Sushil Kumar Sayal [Sayal, Sushil Kumar]
Language: eng
Format: epub
ISBN: 9789385890710
Publisher: Penguin Books Ltd
Published: 2016-02-14T18:30:00+00:00

An Anonymous Offer

The financial meltdown of 2008 had been in the making for quite some time. It all started in the United States where banks were loaning money freely to people to buy houses. The real estate market there went into a bullish phase. Everybody seemed to be investing in the sector.

Like it happens in any bullish run, the due diligence norms were overlooked. Nobody seemed to be prepared to believe that one day the party would end. It later came to light that people had raised multiple loans on the same assets: houses were mortgaged to more than one lender. It was easy money and everybody wanted a share of it.

But the market could not sustain this unprecedented rise. When the bubble burst and prices went into decline, the banks realized that the assets they held as collateral were grossly inadequate and could not cover their loans. In other words, if they took control of the assets they had lent against and sold them, they would still incur a loss.

This precipitated the subprime crisis. Bank after bank collapsed. Lehman Brothers was the first to go under. The real estate market in the United States went into a tailspin because of the crisis. Nobody wanted to be a part of it. In very little time, the sector went from boom to bust.

For a while, it seemed as though India too would be affected by the crisis, but luckily the country escaped the worst of it. That’s because Indian banks had almost zero exposure to subprime loans. Moreover, Indians are conservative borrowers. There is a certain stigma associated to defaulting on loans. While in the United States there is no great shame associated to losing a house due to non-payment of loans, an Indian takes it seriously—he tries his best to avoid such a situation.

Given the breakneck speed at which the real estate sector had grown in India over the last few years, there was some fear that the sector would collapse here too. However, there was only one temporary setback, which resulted in some soul searching and stock taking—but the sector did not face any serious trouble.

Once it was clear that the conditions that led to the subprime crisis in the United States did not exist in India, the sentiment perked up again. Unlike the situation in the West, Indians had started buying homes and commercial property by the middle of 2009 again.

The country’s economy too was able to absorb the shock of the crisis quickly. India’s gross domestic product growth fell from 9.3 per cent in 2007–08 to 6.8 per cent in 2008–09, but rose to 8 per cent in 2009–10 and 8.5 per cent in 2010-11.

Even though the crisis didn’t affect India directly, it wasn’t as if the country was totally immune to the external shocks. It was, after all, the biggest jolt to the global economy after the Great Depression of the 1920s.

The stock market suffered significant reverses due to the global crisis. As investment banks incurred

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