Social. Political. Economic. Career| Seyed Ibrahim

Serious issues & ideas. Trusted Sources.

How India Avoided a Crisis

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In the current global financial crisis, India looks much better than US & Europe. Here is how. Article link below.

“In India, we never had anything close to the subprime loan. Indian banks are not levered like American banks. Capital ratios are 12 and 13 percent, instead of 7 or 8 percent. All those exotic structures like C.D.O. and securitizations are a very tiny part of our banking system” Chandra Kochhar, ICICI

“We don’t do interest-only or subprime loans. When the bubble was going on, we did not change any of our policies. We did not change any of our systems. We did not change our thought process. We never gave more money to a borrower because the value of the house had gone up. Citibank has a few home equity loans, but most banks in India don’t make those kinds of loans. Our nonperforming loans are less than 1 percent.” – Deepak Parekh, the chief executive of HDFC

“A lot of Indians, when you push them, will say that if you spend more than you earn you will get in trouble, Americans spent more than they earned.” – an Indian consultant.

Unlike Alan Greenspan, who didn’t believe it was his job to even point out bubbles, much less try to deflate them, Dr. V. Y. Reddy saw his job as making sure Indian banks did not get too caught up in the bubble mentality. About two years ago, he started sensing that real estate, in particular, had entered bubble territory. One of the first moves he made was to ban the use of bank loans for the purchase of raw land, which was skyrocketing.

As securitizations and derivatives gained increasing prominence in the world’s financial system, the Reserve Bank of India sharply curtailed their use in the country. When Mr. Reddy saw American banks setting up off-balance-sheet vehicles to hide debt, he essentially banned them in India.

NYT Article

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Written by S Ibrahim

Dec 21, 2008 at 8:45 pm

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