Last fortnight, the US financial disaster- as expected-blew into a full-fledged global crisis. First stop: Nearly all of Western Europe. Just like the US legislation for the over $700-billion rescue package, governments and central banks across the Atlantic, too, launched into bailout mode. Next stop: Asia, with some real estate lenders in Japan getting wiped out; and Singapore's economy, which plunged into recession.
The International Monetary Fund (IMF) revised upwards its projection of the losses of the US banking system to $1.4 trillion. At which point, the financial tornado hit the west coast of India. For a whole week, it had Indian stock, currency and money markets in high panic. The Sensex lost nearly 2,000 points in a week, overnight inter-bank lending rates shot up to 22 per cent (from single-digit rates), the rupee slumped to Rs 48.72 to a dollar and scared investors in debt schemes of mutual funds pressed the redemption trigger. Within days, money and confidence in the Indian economy vanished into thin air.
The Reserve Bank of India (RBI) stepped in swiftly with liquidity-releasing steps. Finance Minister P. Chidambaram proclaimed the Indian banks' strong credentials and low vulnerability of the system to the growing global financial mess.
The Government cancelled its scheduled borrowing for Rs 10,000 crore from the money market. Chidambaram set up a group of who's who from the financial world to suggest, within a week, ways to ease the liquidity crunch. On October 13, Chidambaram guaranteed liquidity yet again before the opening bell at the stock markets.
Finally, sanity returned when the Asian stock markets posted relief rallies. But that may have just been temporary relief. The ghost of Wall Street is still out there. BT takes a look at the toll in India so far and what to expect next.
The financial crisis has spread way beyond its epicentre in the US and has engulfed most of Western Europe. Here's a country-by-country status and assessment.
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Alarm: The total liabilities of Barclays of £1,300 billion (leverage ratio of over 60), surpass Britain's GDP
Alarm: Fortis Bank's liabilities are several times larger than the GDP of Belgium (leverage ratio of 33)
Alarm: The total liabilities of Deutsche Bank (leveraging ratio of over 50) amount to 2,000-billion euro, which is more than 80 per cent of the GDP of Germany
Alarm: Real estate companies are folding up, forcing regional banks to raise reserves against bad loans