The recent global financial turmoil has been caused by a variety of factors: seemingly innovative derivative instruments that misallocated risks, a faulty securitization process based on `Originate-to-distribute' model that did not have its bearings right in sound and normative lending practices, a lax monetary policy of the US that discouraged savings and promoted profligacy, the global financial imbalances that resulted in excessive dollar inflows into the US treasury and corporate sectors from all parts of the globe, etc. The regulatory oversight has proved to be inadequate in the midst of unprecedented challenges. Cross-border vigilance on the flow of short-term funds is conspicuous by its absence. Major investment bankers, the world over were in the midst of a crisis. Some of them collapsed while others survived through massive bailout packages. There was a great liquidity and credit crunch. Major economies have reverted to an easy monetary policy to fight slowdown and recession. Interest rates have touched the nadir. Substantial economic stimulus packages were rolled out to halt the slide and spur demand.

India is perceived as an economy that did not contribute to the turmoil but has become its victim. Indian banking system could buck the global trend, thanks to its traditional and conservative approach. In recent years, it aimed at sustained economic growth and successfully identified the growth drivers for financial support. While it suffered due to global liquidity crisis, the damage has not been significant.

Professional Banker Magazine, Indian Banking System, Global Financial Turmoil, Global Liquidity Crisis, Economic Growth, IT Sector, Foreign Institutional Investors, FIIs, Economic Systems, Open Market Operations, Risk Management, Securitization Process.