K.J.

SOMAIYA COLLEGE OF ARTS AND COMMERCE

IMPACT OF GLOBAL MELTDOWN ON BANKING SECTOR
Group Members
(S.Y.BMS)
 Taral.Mandaliya  Raunak .Pradhan  Ajinkya.Kedar  Chaitali.Sawant  Nikhil.Puri ...  Sh
adab.Qureshi
25 34 ..58 ..57 33 ..36
Acknowledgement
 It gives us great pleasure to present before you a
project on Strategic Management IMPACT OF GLOBAL MELTDOWN ON BANKING SECTOR . As
a BMS student we are honored to undergo a project work at an undergraduate leve
l.  We are thankful to the library for helping in finding out the information abo
ut the topic.  We would to extend our sincere thanks to our prof. Mrs.Pramila Pat
il & the college for their valuable guidance in the subject.
What Is Recession ?
A Recession is a contraction phase of the business cycle.
 National Bureau of Economic Research (NBER) is the official agency in charge of
declaring that the economy is in a state of recession.
They define recession as : significant decline in economic activity lasting more
than a few months, which is normally visible in real GDP, real income, employme
nt, industrial production, and wholesale-retail sales .
What Causes Recession ?
An economy typically expands for 6-10 years and tends to go into a recession for
about six months to 2 years.

 A recession normally takes place when consumers loose confidence in the growth o
f the economy and spend less.  This leads to a decreased demand for goods and ser
vices, which in turn leads to a decrease in production, lay-offs and a sharp ris
e in unemployment.  Investors spend less as they fear stocks values will fall and
thus stock markets fall on negative sentiment.
World Economy
The Global Economy
 Felt a need to Preserve capital. Therefore
Started tightening credit , Started restricting lending to the Indian consumer a
nd businesses.
 Since then
Loans became difficult to come by banks, Bank cut Credit card limits.
Indian consumers significantly reduce spending.
During the weekend of September 14-15, Lehman Brothers declared bankruptcy after
failing to find buyers.
Bank of America agreed to purchase Merrill Lynch, & consortium of 10 banks creat
ed an emergency fund of at least $70 billion to deal with the effects of Lehman'
s closure.
Another bank failure occurred on September 25 when JP Morgan Chase agreed to pur
chase the banking assets of Washington Mutual
 The year 2008 as of September 17 has seen 81
public corporations file for bankruptcy in the United States.
 Lehman Brothers being the largest bankruptcy in
U.S. history also makes 2008 a record year in terms of assets with Lehman's $691
billion in assets all past annual totals.
 The year also saw the ninth biggest bankruptcy
with the failure of Indy Mac Bank.
 Other Famous who got bankrupt were, fannies
mae & Freddie Mac, aig, bearstearns etc.
Banking sector!
 Indian banks are facing through a tough time of
liquidity crunch. Lehman Brothers had invested a great amount in the stocks of I
ndian banks that have invested in derivatives.
 A sudden fall in the economy directly affected
Lehman and Merill, eventually forcing them to file a bankruptcy.
 Falling down of Lehman had a great impact on the
leading international bank, ICICI Bank, a bank that had invested in Lehman s bon
ds. This meltdown even have covered the Axis Bank but not to a great extent.
 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.
 With all this, the Indian Sensex swung violently
downward, mainly because of the foreign companies pulling out credits to meet hi
gh inflations.
 Central banks have worked to improve liquidity but
are charging higher credits. The interest rates have drastically increased from
11.5% to nearly about 16%.
 On the issue Mr. Manmohan Singh suggested-
A coordinated fiscal stimulus by countries that are in a position to do so would
help to mitigate the severity and duration of the recession. It would also send
a strong signal to investors around the world. resort to fiscal stimulus may be
viewed as risky in some situation, but if we are indeed on the brink of the wor
st downturn since the great depression, the risk may be worth taking, he added.
CORRECTIVE
STEPS TAKEN TO CHECK
RECESSION
 RBI needs to neutralise the outflow of FII money by unwinding the market stabili
sation securities that it had used to sterilise the inflows when they happened.
 This will mean drawing down the dollar reserves which is important at this hour.
 Also, the government should try and improve liquidity , while CRR and SLR must b
e cut further.  Indian Companies have to adopt a multipronged strategy, which inc
ludes diversification of the export markets, improving internal efficiencies to
maintain cost competitiveness in a tight export market situation .
Policy rate (02-jan-2009)
        
  
 
 
     
      
 


      
                             
Reserve Ratios (2008) Cash Reserve Ratio 5%. Statutory Liquidity Ratio 24.0%.
Lending or Deposit Rates (2008) Prime Lending Rate 12.75%-13.25%. Saving Bank Ra
te 3.5% Deposit Rate 7.50%-10.75 .
Current scenario - Impact of recession on banking sector
 Recession has grabbed almost all the
organisations of the world.  Several people have lost jobs - facing the financial
problems.  Government - doing best to come out of the problem.  Banks are providi
ng business loans at low rate.
 Government - providing money
packages to organisations.  If I talk about India, here the situation is still sa
tisfactory if compare it with other countries of the world.  Reserve bank of Indi
a (RBI) has decreased the rate of interest.  SBI and ICICI are also providing dif
ferent types of loans at a low rate of interest.
CONCLUSION
It is now for the Banks and the big industries to fulfill their share of respons
ibilities and ensure that the measures taken are effective. They need to move ha
nd in hand with the government.
 Time and again, the Prime Minister has been assuring the people that despite the
international environment the country has the capacity, ability and resilience
to cope with the present global crisis.
Sources
 www.google.com.  www.wikipedia.com.  Business Times  Economic Times