danger opportunity. danger opportunity indian banking system a few india banks have presence...
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Danger
Opportunity
Danger
Opportunity
Indian Banking System
A few India Banks have presence overseas
Stringent RBI restriction on opening office overseas
Indian Banks overseas mainly provide trade finance with host
country
Collective external commercial borrowing of all Indian Banks
miniscule as % of GDP. Iceland went too far
Status of integration with global Banking system
Danger
Opportunity
Indian Banking System
Foreign Banks presence in India
License restricted to a few branches per year
Foreign banks active mainly in capital flows to Indian Banks /
Corporate sector
Also have retail presence
Indian and Foreign Banks have mutual correspondent relationship
to promote trade finance & FX business
Status of integration with global Banking system
Danger
Opportunity
Indian Financial System - Strengths
Investments financed primarily through local savings
Prudential policies have attempted to prevent excessive recourse to
foreign borrowings
GoI fiscal deficit though high but financed from Internal Savings
Current Account deficit restricted to 1-2% of GDP since 1990
Indian approach is gradual, focused and calibrated opening of
financial sector, taking into cognizance reforms in the other sectors
of the economy.
Danger
Opportunity
Indian Financial System - Strengths
Financial markets contributing to efficient channeling of domestic
savings into productive uses and are supporting domestic growth.
India's external and financial sector management coupled with
ample forex reserves coverage and the growing underlying strength
of the Indian economy reduce the susceptibility of the Indian
economy to global turbulence.
Summary
Danger
Opportunity
Financial Crises
Potential reversal of capital flows
Liquidity crises
Treasury Losses from derivatives
Capital erosion due to losses
Erosion in shareholders wealth
Risk management
Brand erosion
Job losses
Possible downside impacts
The macro effects have so far been muted due to
Overall strength of domestic demand
Healthy balance sheets of the Indian corporate sector
Predominant domestic financing of investment.
Danger
Opportunity
Indian Baking System
Indian banks are properly captalized and well regulated in
comparison to US banks
Banks are subject to prudential regulations in regard to capital and
liquidity
Banks borrowing restricted in Interbank Market; linked to networth
Strict ALM prescribed by RBI. Northern Rock type situation not
possible in India
ECB severely restricted by RBI; prior permission required
Regulation saved the day
Danger
Opportunity
Indian Baking System
Derivative instruments permitted as Risk Management Product
rather than trading products
Complex synthetic derivative not permitted; will be introduced as &
when effective Risk Management set up in place
Restriction of exposure to high volatile sectors like Real Estate,
Stock Market etc
Tight regulation for NBFCs on prudential exposure norms, thereby
eliminating systemic risks
Regulation saved the day
Danger
Opportunity
Indian Baking System
Export / Import down >20% leading to fall in Trade Finance
Business
Fresh External Commercial Borrowing of Banks impacted due to
rise in rates
Few Indian banks had invested in the collateralised debt obligations
(CDOs) / bonds which had a few underlying entities with sub-prime
exposures
Impacts of Financial Crises
SWAP
Danger
Opportunity
Indian Baking System
Few banks did suffer on account of the mark-to-market losses
caused by the widening of the credit spreads arising from the
sub-prime episode on term liquidity in the market, even though
the overnight markets remained stable.
Few Banks had exposure on failed entities like Lehman Brothers
Impacts of Financial Crises
Danger
Opportunity
Thank You
Danger
Opportunity
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