Impact of Global Economic Situation on the Indian Banking Industry.Doc

INDIAN INSTITUTE OF MANAGEMENT

AHMEDABAD

Impact of Global Economic Situation on the Indian Banking Industry

By

Ankit Jain

&

Deepti Gunjikar

17 Jan, 2009

TABLE OF CONTENTS

ABSTRACT 1

INTRODUCTION 2

THE INDIAN BANKING INDUSTRY 2

The structure 2

A snapshot of 2006-07 3

RBI’s MONETARY POLICY 4

Changes in the monetary policy 4

Impact on the banking industry 5

FOREIGN CAPITAL FLOW TRENDS 5

ASSET QUALITY PRESSURES 6

Small and Medium Enterprises (SMEs) 6

Export oriented sectors 7

Real Estate 7

Retail Credit 7

Mortgage loans 7

Vehicle loans 8

Unsecured loans 8

LONG TERM GROWTH DRIVERS 9

Core banking and IT applications 9

Latent demand for credit 9

Long term growth of the Indian Economy 9

CONCLUSION 10

EXHIBITS 11

REFERENCES 13

ABSTRACT

While the Indian banks do not have direct exposure to the toxic assets that the American banks had, there has been an indirect impact on banks due to the overall economic slowdown. The slowdown has resulted in lower deposits and lower demand for loans. There has also been an increase in defaults which has reduced the asset quality of the loans held.

To counter these threats, RBI has cut the key interest rates several times over the last few months. The reduction in interest rates is expected to trigger the slowing demand and improve availability of capital to private sector.

In this report we discuss the impact of these developments on Indian banking industry. We then discuss some of the long term growth drivers of the banking industry. A discussion on the relative impact of these factors concludes with a positive future outlook for the banks in the long term.

Word Count: 150

INTRODUCTION

One of the longest periods of economic boom that the world had experienced, came to an abrupt halt in the year 2008. The major reason behind this was the slowdown in the US economy caused by the...