It is the volatility that mattered more than liquidity for the banks at the international level. While liquidity conditions were generally benign during most part of the year, the subprime crises in the US and the monetary tightening policies being persued various major economies have resulted in short spells of liquidity crunches and even credit crunches. Consequently, interest rates have hardened gradually.
Emerging economies performed relatively better with higher Gross Domestic Product (GDP) rates and generally rising levels of exports. While credit spreads were shrinking everywhere, the retail credit revolution persisted, except perhaps in the US, where home loan markets have witnessed negative growths. The two mortgage giants of America's $11 tn mortgage market, Fannie Mae and Freddie Mac, have recently posted huge quarterly losses of $ 1.4 bn and $2 bn respectively, and are desperately searching for funding sources to augment their capital bases. Banks, in the US, in turn, may now find it difficult to depend on them to buy or guarantee their mortgages. With the resultant reduction of credit funds, the US banks may experience the ill effects of a possible recession in the economy as well, to add to their woes, on the face of the subprime crisis. Many investment bankers like Lehman Brothers, in fact, suffered huge losses and many CEOs have even lost their jobs following the crisis.
With strong macroeconomic fundamentals and rising GDP growth rate, the Indian growth story was congenial for progress in the banking sector. However, there were challenges like higher inflation, rising interest rates, falling dollar, rather insipid performance of the farm sector and worsening rural socioeconomic scenario. |
