Crisis Of Credit Which Brought America’s Economy Down

2008 DEBT CRISIS

Reasons of the crisis:-

• The Housing Bubble Burst• Sub-Prime Mortgages• Sky-High Price of Crude Oil and Refined

Product ($100 a barrel)• Dollar Devaluation• High Unemployment Rate (10.9%)

“

”So Lets

Understand How this Happened:-

Effect on World:- Worse hit are the poorest countries. The 15-country Euro zone were defined as a

shrinking economy for two consecutive quarters. Decreased demand for exports and remittances

slowed down the Asia-Pacific economy. Fall in house prices and increase in unemployment

in the UK economy . India recovered early as there was very little

exposure to foreign assets and their derivative products.

Effects On India :- Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. For the first time in five years, India’s export growth has turned

negative. Exports for October 2008 contracted by 15% on a year-on-year basis.

Foreign investors have pulled out from stock market. The Sensex crashed by nearly 13% in just two trading sessions in

January. cont….

Cont…. IT industries, financial sectors, real estate owners, car Industry,

investment banking and other industries as well are confronting heavy loss due to the fall down of global economy.

The demand for houses had reduced significantly and property prices across India has registered 15-20% fall.

Lehman Brothers had signed a partnership with some of the real estate companies like Peninsula Land Ltd and DLF Assets. These have also suffered a heavy loss.

Falling down of Lehman had a great impact on the leading international bank, ICICI Bank, a bank that had invested in Lehman’s bonds. This meltdown even have covered the Axis Bank but not to a great extent.

Impact on rupee:-There has been almost a 20% increase in the

Indian rupeeDollar in comparison to the rupee has fallen

from a rate of 48 Re. for 1$ to a rate which is expected by the RBI to range from 39.15 Re - 39.50 Re.

Corrective Measures

The effective policy rate was brought down from 9% (repo rate) in September 2008 to 3.25% (reverse repo rate) in April 2009.

The cash reserve ratio was cut down from 9.0% in September 2008 to 5% in January 2009 with a view to injecting liquidity into the banking system.

Huge amount of liquidity was introduced through purchase of government securities under open market operation (OMO).

Corrective Measures

Refinance facilities for export credits were enhanced.

Institution of a rupee-dollar swap facility for Indian banks to give them comfort in managing short-term foreign funding requirements of their overseas branches.

The measures undertaken by the Reserve Bank during September 2008- July 2009 have resulted in augmentation of actual/potential liquidity of Rs. 5, 61,700 cr.

THANK YOU…..