1 / 14

Global Meltdown Challenges & Opportunities

Global Meltdown Challenges & Opportunities. N. Sivaraman Executive Vice-President Financial Services. 7 th November 2008. The Times of Turmoil. Great Past. Low interest rates to spur growth after the dotcom bust Growth world over supported by Easy and cheap money Low commodity prices

fauve
Télécharger la présentation

Global Meltdown Challenges & Opportunities

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Global MeltdownChallenges & Opportunities N. Sivaraman Executive Vice-President Financial Services 7th November 2008

  2. The Times of Turmoil

  3. Great Past • Low interest rates to spur growth after the dotcom bust • Growth world over supported by • Easy and cheap money • Low commodity prices • Improving efficiencies • Opening up of economies • Rising income and credit leading to large investments in housing sector across the globe • More in US and UK

  4. Recent past • Sharp rise in commodity prices • Investors chasing commodities accelerated the trend • Rising global inflation on the back of rising commodity and food prices • Central banks responded by raising interest rates • Housing prices dropped in response to higher cost of credit and delinquencies • Signs of stress visible in mid-2007 in the global financial system • Start of a spiral?

  5. Current gloom • Near paralysis of credit markets • Lack of liquidity • Preserving cash for fear of loss and unknowns • Lack of trust • Non-availability of capital • Equity or debt • Fear all over • World’s major economies on the throes of negative economic cycle • Could it be for long?

  6. Themes across the world • Cash is King • Large losses have reduced cash availability • Institutions holding on to cash for fear of unknown • Lending among banks is at premium over Libor (even L+ 3-4%) • Libor loses benchmark status, Lending on ‘Cost of funds’ basis • Corporate lending is for shorter tenors (3-5yrs) • Indian Mibor touching 18% • Asia-Pac banks, though healthier, have increased their lending margins due to high opportunity cost • Flight to safety • Risk Aversion • De-leveraging, Re-capitalisation

  7. Cause of gloom • Creativity • Confidence • Comfort • Everything got stretched at the margin – almost continuously • Expectations of perpetuity

  8. Cure administered • Fire-sale of institutions • Massive injection of liquidity by central banks • Infusion of equity by governments • Quasi-nationalisation • Large rate cuts • Federal Reserve lends directly to corporates

  9. In India • India was a beneficiary of large capital flows over the last five years • Excessive liquidity and consumption growth • Exuberance – justifiable to a large extent • Recent sharp increase in inflation • RBI curtails liquidity and raises rates • A decoupled India? • India suffers the pangs of global financial crisis as capital flows reversed/dried up • Financial systems remains resilient with RBI’s right balance between control and de-regulation

  10. Recent RBI actions • Cuts CRR by 350 bps • Cuts Repo-rate by 150 bps • Cuts SLR by 100 bps • 90 day refinancing facility of upto 100 bps of deposits • Refinancing 150 bps of deposits for financing MFs and NBFCs • Relaxed ECB norms for NBFCs also • Repurchase of Market Stabilisation Securities – Rs. 160,000 crores • Cumulative increase in liquidity of about Rs. 440,000 crores in various stages

  11. Challenges & Opportunities

  12. The Challenges • Sustain economic growth • Difficult financial conditions • Overcoming balance of payment issues • Need to find capital in the absence of overseas flows • Restoration of confidence in banking system • Ensure liquidity in the system • Continued lending by banks • Mitigate credit losses due to bankruptcy • Mitigate the impact of mutual funds ceasing to be a source of capital • Delay in availability/Increased cost of capital leading to cost overruns and project delays • Balancing of growth and inflation • Slowdown in jobs

  13. Opportunities • Wave of industry consolidation • Increase in “restructuring mergers” • Improved cost control measures • Sustainable initiatives • Outsourcing opportunities • Strong Indian entities can grow globally • World moves to a conservative regulatory regime • Complex & over-clever financial instruments under check

  14. Thank You

More Related