The Mumbai CFA Association organized a convention on ‘Global Financial Meltdown – Its impact on India’ on January 30, 2009 at IMC, Mumbai. The speakers represented senior bankers.

Mr. N. Shankar, CFA and ED – Export-Import Bank of India, delivering his speech, traced the timelines and anatomy of events including creation of toxic assets and exotic derivatives along with their multiplier effect at the time of moving from off-balance-sheet to on-balance-sheet. Unrealistic targets and front-end incentives compounded the problems. As a result, investment basemen to be disappearing. He spoke about the crisis of confidence, lack of trust and negative market sentiment causing institutions to pay a heavy price for sourcing funds.  He gave copious examples of failure of institutions with their timelines and global responses to mitigate them. He delved into the macro-impact on India including the effect on exports.

The other CFA speakers were Mr. B. Lakshminarayana, DGM, Corporation Bank and Mr. Ashwini Kumar, Vice President, HSBC Bank.

At the occasion, Mr. J.B. Ram, President of The Mumbai CFA Association, welcomed the guests while Mr. N. Shankar presided over the function.

Mr. Lakshminarayana  spoke about the common man’s perspective since the awareness levels have increased. He did a root cause analysis of the crisis and elaborated upon the measures taken by GOI and RBI for containing the situation. According to him the key lessons learnt include:

• Excessive leverage is harmful to the stability of markets

• No one is too big to fail

• Regulators to stay ahead of markets

• Unregulated entities to fall within market tracks

• Excessive front-end incentivization – Key contributor to the present crisis

In the context of impact on Indian banking, the following points were relevant:

• Low contagion impact

• No direct exposure to US subprime market

• Indirect exposure to subprime market through CDOs to a small extent

• Rural Consumer

• Government spending

• Lower Inflation

• Low cost housing

• Revised GDP growth rate not too low

• High domestic savings

• Domestic investments largely financed by domestic savings

Mr. Ashwini Kumar elaborated on the crisis scenario in the US and in India. He said that the crisis originated in the US. Quoting facts and figures, he said that the market capitalization of various banks had eroded ranging from 48% to 93%. He was hopeful of the scenario in India, which appeared to be dissimilar from those of the west. He said, “Indian banking system is very sound. Indian banks have recorded good performance even in the current financial year. NPAs of Indian banks are showing reducing trend, unlike its counterparts in USA or Europe. The Industries, which are dependent on exports, are facing the serious problems. Most affected industries are textiles, gems & jewellery, chemicals, BPOs, financial services, software, leather, glass, auto and tourism.” Although the theory of Decoupling of the US and other economies has been proved wrong, Indian businesses would emerge earlier from the slump than their overseas counter-parts.

According to Mr. Ashwini Kumar, some helpful measures could include Liquidity infusion in the system; Bail-out packages from the government; Increase in ceiling for rate of interest for overseas borrowings; Favorable policies for the affected industries; and Support from the banking industry, regulators. Key factors required to minimize the impact of recession would be- the ability to assess risk; adequate capital to absorb losses; and Bringing back confidence among banks, investors and consumers.

The function was well attended. The impressive audience included CFAs, senior bankers, investment bankers, corporate executives and academicians.