Saturday, November 15, 2008

Financial Crisis in India

The storm of financial crisis hits India, for nearly a decade, companies in India have had a strong run of growth, pulled along by fast economic expansion and blessed with low inflation. World now is very different from what it used to be for the  10 years. There are some collateral damages which can happen.


There may be sharp decline in consumer spending on houses, cars and other consumer durables, following the sharp decline in lending to households, will cause a recession in the construction industry and also in  production of consumer durables.

 

Most of the loans on houses will default on their  payments and consumer loans, especially as house values will fall below the loan values.

 

Non Performing Assets (NPA's )  in the banking sector will increase as there will more write-off of bad housing loans and personal loans. These  losses to the banks will push  financial institutions into bankruptcy or forced mergers with stronger banks.

 

Then there will be retrenchment of lending even the smallest term loans, which banks and other institutions lend to each other for their  working capital. 

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