A PROJECT REPORT ON

IMPACT OF RECESSION ON BANKING SECTOR IN NSE MARKET

SUBMITTED TO

Institute of Professional Education & Research, Bhopal

SESSION (2010 2011)

GUIDED BY: Prof. DR. Atul Singhai

SUBMITTED BY:Raju Yadav

ACKNOWLEDGEMENT

If words are considered to be sign of gratitude then let these words convey the very same. I am highly indebted to Prof. Atul singhai who has provide me with the necessary information and also for the support and his valuable suggestions and comments on bringing out this report in the best way possible. I feel great pleasure to cordial thanks to all faculty members of management department of IPER who sincerely supported me with the valuable insights into the completion of this project and I am thankful to that power that always inspire me to take right step in the journey of success in my life.

INDEX

S.N0 1.

CONTENTS INTRODUCTION

About the nse Banking sector in NSE Recession Causes of recessions Effects of recessions Bank listed in nse Introduction to recession Definition of recession Causes & effects of recession Attributes of recession

3.

RESEARCH METHODOLOGY Objective Database for the current study: Type of research Research process Limitations of project Sample & sampling technique Data collection

5. 6.

DATA REPRESENTATION DATA ANALYSIS Stock market and recessions:-

Global recession Monetary policy Government's fiscal Rbi's policy stance Monitory policy during recession Changing Stance Of Monetary Policy In India Analysis of banking sector Ratio Interpretation

7. 8. 9. 10.

FINDINDS RECOMMENDATIONS CONCLUSION BIBLIOGRAPHY

INRODUCTION

INTRODUCTION NATIONAL STOCK EXCHANGE

About The Organisation
The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges. It recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. The National Stock Exchange (NSE) operates a nation-wide, electronic market, offering trading in Capital Market, Derivatives Market and Currency Derivatives segments including equities, equities based derivatives, Currency futures and options, equity based ETFs, Gold ETF and Retail Government Securities. Today NSE network stretches to more than 1,500 locations in the country and supports more than 2, 30,000 terminals. With more than 10 asset classes in offering, NSE has taken many initiatives to strengthen the securities industry and provides several new products like Mini Nifty, Long Dated Options and Mutual Fund Service System. Responding to market needs, NSE has introduced services like DMA, FIX capabilities, co-location facility and mobile trading to cater to the evolving need of the market and various categories of market participants. NSE has made its global presence felt with cross-listing arrangements, including license agreements covering benchmark indexes for U.S. and Indian equities with CME Group and has also signed a Memorandum of Understanding (MOU) with Singapore Exchange (SGX) to cooperate in the development of a market for India-linked products and services to be listed on SGX. The two exchanges also will look into a bilateral securities trading link to enable investors in one country to seamlessly trade on the other countrys exchange. NSE is committed to operate a market ecosystem which is transparent and at the same time offers high levels of safety, integrity and corporate governance, providing ever growing trading & investment opportunities for investors.

NSE Milestones:November 1992 April 1993 May 1993 June 1994 November 1994 March 1995 April 1995 June 1995 Incorporation Recognition as a stock exchange Formulation of business plan Wholesale Debt Market segment goes live Capital Market (Equities) segment goes live Establishment of Investor Grievance Cell Establishment of NSCCL, the first Clearing Corporation Introduction of centralised insurance cover for all trading members

July 1995 October 1995 April 1996 April 1996 June 1996 November 1996 November 1996 December 1996 December 1996 December 1996 February 1997 November 1997 May 1998 May 1998 July 1998 August 1998 February 1999 April 1999 October 1999 January 2000 February 2000 June 2000 September 2000 November 2000 December 2000

Establishment of Investor Protection Fund Became largest stock exchange in the country Commencement of clearing and settlement by NSCCL Launch of S&P CNX Nifty Establishment of Settlement Guarantee Fund Setting up of National Securities Depository Limited, first depository in India, co-promoted by NSE Best IT Usage award by Computer Society of India Commencement of trading/settlement in dematerialised securities Dataquest award for Top IT User Launch of CNX Nifty Junior Regional clearing facility goes live Best IT Usage award by Computer Society of India Promotion of joint venture, India Index Services & Products Limited (IISL) Launch of NSE's Web-site: www.nse.co.in Launch of NSE's Certification Programme in Financial Market CYBER CORPORATE OF THE YEAR 1998 award Launch of Automated Lending and Borrowing Mechanism CHIP Web Award by CHIP magazine Setting up of NSE.IT Launch of NSE Research Initiative Commencement of Internet Trading Commencement of Derivatives Trading (Index Futures) Launch of 'Zero Coupon Yield Curve' Launch of Broker Plaza by Dotex International, a joint venture between NSE.IT Ltd. and i-flex Solutions Ltd. Commencement of WAP trading

June 2001 July 2001 November 2001 December 2001 January 2002 May 2002 October 2002 January 2003 June 2003 August 2003 June 2004 August 2004 March 2005 June 2005 December 2006 January 2007 March 2007 June 2007 October 2007 January 2008 March 2008 April 2008 April 2008 August 2008 August 2009 November 2009

Commencement of trading in Index Options Commencement of trading in Options on Individual Securities Commencement of trading in Futures on Individual Securities Launch of NSE VaR for Government Securities Launch of Exchange Traded Funds (ETFs) NSE wins the Wharton-Infosys Business Transformation Award in the Organization-wide Transformation category Launch of NSE Government Securities Index Commencement of trading in Retail Debt Market Launch of Interest Rate Futures Launch of Futures & options in CNXIT Index Launch of STP Interoperability Launch of NSEs electronic interface for listed companies India Innovation Award by EMPI Business School, New Delhi Launch of Futures & options in BANK Nifty Index 'Derivative Exchange of the Year', by Asia Risk magazine Launch of NSE CNBC TV 18 media centre NSE, CRISIL announce launch of IndiaBondWatch.com NSE launches derivatives on Nifty Junior & CNX 100 NSE launches derivatives on Nifty Midcap 50 Introduction of Mini Nifty derivative contracts on 1st January 2008 Introduction of long term option contracts on S&P CNX Nifty Index Launch of India VIX Launch of Securities Lending & Borrowing Scheme Launch of Currency Derivatives Launch of Interest Rate Futures Launch of Mutual Fund Service System

December 2009 February 2010 March 2010 April 2010 July 19, 2010 July 19, 2010 July 28, 2010 October 12, 2010 October 28, 2010 October 29, 2010 December 2010 29,

Commencement of settlement of corporate bonds Launch of Currency Futures on additional currency pairs NSE- CME Group & NSE - SGX product cross listing agreement Financial Derivative Exchange of the Year Award' by Asian Banker Commencement of trading of S&P CNX Nifty Futures on CME Real Time dissemination of India VIX. LOI signed with London Stock Exchange Group Introduction of Call auction in Pre-open session Introduction of European Style Stock Options Introduction of Currency Options on USD INR

November 9, 2010 Launch of mobile trading for all investors NSCCL Rated CCR AAA for third consecutive year NSE receives Financial Inclusion Award

January 05, 2011

SelectionCriteria:Selection of the index set is based on the following criteria: 1. Company's market capitalisation rank in the universe should be less than 500. 2. Company's turnover rank in the universe should be less than 500 3. Company's trading frequency should be at least 90% in the last six months. 4. Company should have a positive networth. 5. A company which comes out with a IPO will be eligible for inclusion in the index, if it fulfills the normal eligiblity criteria for the index for a 3 month period instead of a 6 month period.

BANK LISTED IN NSE:-

1. Axis Bank Ltd 2. Bank of Baroda, 3. Bank of India, 4. Canara Bank, 5. HDFC Bank Ltd., 6. ICICI Bank Ltd., 7. IDBI Bank Ltd., 8. Kotak Mahindra Bank Ltd., 9. Oriental Bank of Commerce, 10.Punjab National Bank, 11. State Bank of India, 12.Union Bank of India.

BANKING SECTOR
Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India.

BANKING SECTOR IN NSE:The Indian banking Industry has been undergoing major changes, reflecting a number of underlying developments. Advancement in communication and infromation technology has facilitated growth in internet-banking, ATM Network, Electronic transfer of funds and quick dissemination of infromation. Structural reforms in the banking sector have improved the health of the banking sector. The reforms recently introduced include the enactment of the Securitization Act to step up loan recoveries, establishment of asset reconstruction companies, initiatives on improving recoveries from Non-performing Assets (NPAs) and change in the basis of income recognition has raised transparency and efficiency in the banking system. Spurt in treasury income and improvement in loan recoveries has helped Indian Banks to record better profitability. In order to have a good benchmark of the Indian banking sector, India Index Service and Product Limited (IISL) has developed the CNX Bank Index. CNX Bank Index is an index comprised of the most liquid and large capitalized Indian Banking stocks. It provides investoRs and market intermediaries with a benchmark that captures the capital market performance of Indian Banks. The index will have 12 stocks from the banking sector which trade on the National Stock Exchange. The average total traded value for the last six months of CNX Bank Index stocks is approximately 95.85% of the traded value of the banking sector. CNX Bank Index stocks represent about 86.06% of the total market capitalization of the banking sector as on January 30, 2009. The average total traded value for the last six months of all the CNX Bank Index constituents is approximately 14.86% of the traded value of all stocks on the NSE. CNX Bank Index constituents represent about 8.63% of the total market capitalization on January 30, 2009.

Recession
RECESSIONS ARE the result of reduction in the demand of products in the global market. Recession can also be associated with falling prices known as deflation due to lack of demand of products. Again, it could be the result of inflation or a combination of increasing prices and stagnant economic growth in the west. Recession in the West, especially the United States, is a very bad news for our country. Our companies in India have most outsourcing deals from the US. Even our exports to US have increased over the years. Exports for January have declined by 22 per cent. There is a decline in the employment market due to the recession in the West. There has been a significant drop in the new hiring which is a cause of great concern for us. Some companies have laid off their employees and there have been cut in promotions, compensation and perks of the employees. Companies in the private sector and government sector are hesitant to take up new projects. And they are working on existing projects only. Projections indicate that up to one crore persons could

lose their jobs in the correct fiscal ending March. The one crore figure has been compiled by Federation of Indian Export Organizations (FIEO), which says that it has carried out an intensive survey. The textile, garment and handicraft industry are worse affected. Together, they are going to lose four million jobs by April 2009, according to the FIEO survey. There has also been a decline in the tourist inflow lately. The real estate has also a problem of tight liquidity situations, where the developers are finding it hard to raise finances. IT industries, financial sectors, real estate owners, car industry, investment banking and other industries as well are confronting heavy loss due to the fall down of global economy. Federation of Indian chambers of Commerce and Industry (FICCI) found that faced with the global recession, inventories industries like garment, gems, textiles, chemicals and jewellery had cut production by 10 per cent to 50 per cent.

Definition of recession
Recession is not to be confused with depression. Recession means a slow down or slump or temporary collapse of a business activity. In its early stage it can be controlled in a methodical manner. Experience helps to avert total collapse. Unchecked, it leads to severe depression. Depression is a dead end. It is time to close shop completely. It is a total state of irrevocable economic failure. When a country is doing well all round its Gross Domestic Product (GDP) is on the rise. Overall economy is bullish; it is not only the stock exchanges that tell riches to rags stories but even small businesses. It all adds to the national exchequer. An economist is likely to give a detailed, comprehensive definition of recession. But for the layman who has been affected knows it only one way-when he loses his job and has no money to pay his credit and loans. Recession is when the consumer faces foreclosure and the banker comes knocking for his pound (or dollar) of flesh. Many companies and whole countries go bankrupt for want of liquid funds and cash flow for even daily requirements. If you look at it from the point of view of a businessman, recession is a transitory phase. The Business Cycle Dating Committee of the National Bureau of Economic Research has another definition. It profiles the businesses that have peaked with their activity in one season and it falls naturally in the next season. It regains its original position with new products or sales and continues to expand. This revival makes the recession a mild phase that large companies tolerate. As the fiscal position rises, there is no reason to worry. Recession can last up to a year. When it happens year after year then it is serious. Are we facing a recession or not? Yes, for the simple reason that not only our neighbors but our friends are unemployed. There is less of business talk and more billing worries. Transitory recessions are good for the economy, as it tends to stabilize the prices. It allows run away bullish companies to slow down and take stock. There is a saying, when its tough the tough get going. The weaker companies will not survive the brief recession also. Stronger companies will pull through its resources. So when is it time to worry? When you are facing a foreclosure, when the chips are down and out and creditors file cases for recovery. Firms face closures when they go through recession and are not able to recover from losses. If, at this time, they are not able to sustain their prices and stocks then there is more trouble. Even when the recession period gets over, they will not be able to do well. If a business survives a recession period they should be able to survive a depression. But how many recession proof businesses are there? Who will eventually survive the recession?

1. Those that have been able to save their funds. 2. Those who have not invested in fly-by-night companies. 3. Those who remain clam till the storm passes.

Attributes:A recession has many attributes that can occur simultaneously and can include declines in coincident measures of activity such as employment, investment, and corporate profits. A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as an economic depression, although some argue that their causes and cures can be different.

Causes of recessions: Under consumption Overproduction Financial crisis Price of Fuels Currency crisis Energy crisis War Effects of recessions Bankruptcies Credit crunches Deflation (or disinflation) Foreclosures Unemployment

RESEARCH METHODOLOGY

RESEARCH METHODOLOGY
OBJECTIVE: To Know the impact of recession on National Stock Exchange. To Know the impact of recession on banking sector in national stock exchange. To know the impact of recession on public sector bank and private sector bank. To evaluate the best performing bank in public sector and private sector bank. To know the impact of implementation of RBI policies during recession.

Database for the current Study:i. Data for the current study as selected from the NSE website of 2 year duration ii. Annual report of best performing bank in public and private sector. iii. Secondary data is used for the analysis which is collected through various sources like internet, books of journals and newspaper articles.

Type of Research-:
Exploratory research is a type of research conducted for a problem that has not been clearly defined. Exploratory research helps determine the best research design, data collection method and selection of subjects. It should draw definitive conclusions only with extreme caution. Given its fundamental nature, exploratory research often concludes that a perceived problem does not actually exist. Exploratory research often relies on secondary research such as reviewing available literature and/or data, or qualitative approaches such as informal discussions with consumers, employees, management or competitors, and more formal approaches through in-depth interviews, focus groups, projective methods, case studies or pilot studies. The Internet allows for research methods that are more interactive in nature. For example, RSS feeds efficiently supply researchers with upto-date information; major search engine search results may be sent by email to researchers by services such as Google Alerts; comprehensive search results are tracked over lengthy periods of time by services such as Google Trends; and websites may be created to attract worldwide feedback on any subject. The results of exploratory research are not usually useful for decision-making by themselves, but they can provide significant insight into a given situation. Although the results of qualitative research can give some indication as to the "why", "how" and "when" something occurs, it cannot

tell us "how often" or "how many".Exploratory research is not typically generalizable to the population at large.

Research Process:-

Study Of Variouse Banks In Nse

Review some Old Project for concepts Research Design Review some previous research papers

Data Collected by secondary sources

Analysis the Data with the help of various tools of Research Methodology

Interpret the Data and reach to Findings

Data Collection:The data has been collected from the secondary sources NSE website, Annual Reports, Offer Documents and closing values of NIFTY have been noted from www.nseindia.com, www.bseindia.com and banks Personal Sites.

Sample & Sampling Technique:SAMPLE SIZE: 2 year data banks namely sbi, icici,axis bank,yes bank,dena bankand HDFC has been selected of nifty SAMPLING TECHNIQUE: In the present study Convenience Sampling technique has been used.

Limitations of Project: Project is restricted to bank policies. Area of project is very wide so its difficult to cover each and every point.

DATA INTRPRETATION

ICI Date psu bank 2199. 02 2251. 66 2222. 9 2199. 7 2197. 07 2264. 81 2248. 26 2255. 45 2288. 71 2304. 71 2387. 62 2353. 5 2337. 39 2358. 94 2334. 4 2338. 81 2335. 69 2310. 68 2290. 99 2206. 16 2274. 25 CI BI

S C

HDF B

PN

BANK NIFTY s

axi bi

id es

2-Jul-07 3-Jul-07 4-Jul-07 5-Jul-07 6-Jul-07 9-Jul-07 10-Jul07 11-Jul07 12-Jul07 13-Jul07 16-Jul07 17-Jul07 18-Jul07 19-Jul07 20-Jul07 23-Jul07 24-Jul07 25-Jul07 26-Jul07 27-Jul07 30-Jul07

950.2 966.7 985.9 5 1003. 65 981.5 996.5 5 970.7 981.5 963.9 5 985.5 953.5 5 973 980 967.6 5 972.5 1001 970.9 973.7 983.3 5 1010 989.6

1831 1530. 75 1836. 9 1581. 85 1563. 85 1547. 05 1550. 5 1570. 95 1550. 75 1541. 3 1559. 2 1559. 95 1611. 75 1964 1583. 1 1575. 6 1595. 75 1584. 25 1914. 9 1900. 5 1585. 25

1147. 55 1150. 5 1150. 75 1129. 1 1158. 3 1167. 6 1149. 3 1148. 75 1201. 45 1226. 4 1217. 65 1199. 3 1200. 05 1209. 25 1200. 9 1230. 3 1248. 9 1239. 05 1217. 25 1169. 35 1168. 85

528.3 542.9 5 534.4 5 529.0 5 524.2 5 544 538.7 5 529.8 541.1 553.2 5 572.5 5 573.7 561.6 5 580.4 572.5 566.3 564.5 553.4 524.7 5 499.5 5 504.2

4313. 75 4357. 55 4359. 3 4353. 95 4384. 85 4419. 4 4406. 05 4387. 15 4446. 15 4504. 55 4512. 15 4496. 75 4499. 55 4562. 1 4566. 05 4619. 35 4620. 75 4588. 7 4619. 8 4445. 2 4440. 05

607.4 623.4 5 618.6 630 628.7 5 634.5 630.7 631.9 5 642.5 5 644.8 645.7 5 649.7 656.2 650.1 644.6 624.4 614.9 5 618.5 5 615.3 614.3 5 639.1 5

121.4 184.3 121.1 184.8 118.0 193.95 5 118.3 192.65 116.3 5 119.0 5 117.0 5 117.4 196.5 194.4 185.2 185.15

121.7 184.4 5 120.6 183.2 122 183.9

119.4 180.85 115.7 178.75 5 112.3 183.6 5 109.9 181.85 109.4 181.95 5 108.8 181.4 5 111.1 181.4 113.6 182.7 109.0 180.05 5 110.9 183.75 5

DATA ANALYSIS

RECESSION IMPACT ON BANKING SECTOR IN INDIA

Stock market and recessions:Some recessions have been anticipated by stock market declines. In Stocks for the Long Run, Siegel mentions that since 1948, ten recessions were preceded by a stock market decline, by a lead time of 0 to 13 months (average 5.7 months), while ten stock market declines of greater than 10% in the DJIA were not followed by a recession.The real-estate market also usually weakens before a recession. However real-estate declines can last much longer than recessions. Since the business cycle is very hard to predict, Siegel argues that it is not possible to take advantage of economic cycles for timing investments. Even the National Bureau of Economic Research (NBER) takes a few months to determine if a peak or trough has occurred in the US. During an economic decline, high yield stocks such as fast moving consumer goods, pharmaceuticals, and tobacco tend to hold up better. However when the economy starts to recover and the bottom of the market has passed (sometimes identified on charts as a MACD), growth stocks tend to recover faster. There is significant disagreement about how health care and utilities tend to recover. Diversifying one's portfolio into international stocks may provide some safety; however, economies that are closely correlated with that of the U.S. may also be affected by a recession in the U.S. There is a view termed the halfway rule according to which investors start discounting an economic recovery about halfway through a recession. In the 16 U.S. recessions since 1919, the average length has been 13 months, although the recent recessions have been shorter. Thus if the 2008 recession followed the average, the downturn in the stock market would have bottomed around November 2008.

Key announcements
What came in? New banking licenses for few private sector players and NBFCs subject to meeting RBIs eligibility criteria. Capital Infusion of Rs165bn for PSU banks in FY11 thereby enabling them maintain Tier I capital above 8% by March 31, 2011. Extension in repayment of the loan under the Debt Waiver and Debt Relief Scheme for farmers by six months to June 30, 2010 IIFCL to refinance bank lending towards infrastructure projects. FY11 net market borrowings of Government estimated at lower Rs3.45tn; fiscal deficit for the year pegged at 5.5% of GDP Extension of interest subvention scheme to March 31, 2011 on housing loans up to Rs1mn on property value up to Rs2m. Interest subvention of 2% for farmers who repay their short-term crop loans on schedule. Impetus towards Financial Inclusion

Impact

Positive for NBFCs such as Reliance Capital, IFCI, M&M Financial services.

Positive for small PSU Banks - Dena Bank, Syndicate Bank, UCO Bank & United Bank of India.

Positive for PSU Banks.

Positive for banks as it would improve ALM and increase funding to the sector Positive for the sector, with pick up in credit demand clarity over the borrowing programme will ensure adequate moves in interest rates, and leaving negligible impact on banks treasury book.

Positive for Housing Finance Companies and Banks with home loan portfolio.

Neutral as long as the interest part waived is re-paid by the Go to banks.

Positive for the sector in general as it aims at reaching unbanked areas thereby increasing the penetration levels of Insurance and other financial products.

Global :1. The global economic outlook deteriorated sharply over the last quarter. In a sign of the ferocity of the down turn, the IMF made a marked downward revision of its estimate for global growth in 2009 in purchasing power parity terms from its forecast of 3.0 per cent made in October 2008 to 0.5 per cent in January 2009. In market exchange rate terms, the downturn is sharper global GDP is projected to actually shrink by 0.6 per cent. With all the advanced economies the United States, Europe and Japan - having firmly gone into recession, the contagion of the crisis from the financial sector to the real sector has been unforgiving and total. Recent evidence suggests that contractionary forces are strong: demand has slumped, production is plunging, job losses are rising and credit markets remain in seizure. Most worryingly, world trade the main channel through which the downturn will get transmitted on the way forward is projected to contract by 2.8 per cent in 2009. 2. Policy making around the world is in clearly uncharted territory. Governments and central banks across countries have responded to the crisis through big, aggressive and unconventional measures. There is a contentious debate on whether these measures are adequate and appropriate, and when, if at all, they will start to show results. There has also been a separate debate on how abandoning the rule book driven by the tyranny of the short-term, is compromising medium-term sustainability. What is clearly beyond debate though is that this Great Recession of 2008/09 is going to be deeper and the recovery longer than earlier thought. Emerging economies 3. Contrary to the 'decoupling theory', emerging economies too have been hit by the crisis. The decoupling theory, which was intellectually fashionable even as late as a year ago, held that even if advanced economies went into a downturn, emerging economies will remain unscathed because of their substantial foreign exchange reserves, improved policy framework, robust corporate balance sheets and relatively healthy banking sector. In a rapidly globalizing world, the 'decoupling theory' was never totally persuasive. Given the evidence of the last few months capital flow reversals, sharp widening of spreads on sovereign and corporate debt and abrupt currency depreciations - the 'decoupling theory' stands totally invalidated. Reinforcing the notion that in a globalized world no country can be an island, growth prospects of emerging economies have been undermined by the cascading financial crisis with, of course, considerable variation across countries. Questions that will be addressed 4. India too has been impacted by the crisis and by much more than it was suspected earlier. What I propose to do in the rest of my speech is to address the following four questions: i. Why has India been hit by the crisis? ii. How has India been hit by the crisis? iii. How have we responded to the challenge? iv. What is the outlook for India? Why Has India Been Hit By the Crisis? 5. There is, at least in some quarters, dismay that India has been hit by the crisis. This dismay stems from two arguments.

6. The first argument goes as follows. The Indian banking system has had no direct exposure to the sub-prime mortgage assets or to the failed institutions. It has very limited off-balance sheet activities or securitized assets. In fact, our banks continue to remain safe and healthy. So, the enigma is how can India be caught up in a crisis when it has nothing much to do with any of the maladies that are at the core of the crisis. 7.The second reason for dismay is that India's recent growth has been driven predominantly by domestic consumption and domestic investment. External demand, as measured by merchandize exports, accounts for less than 15 per cent of our GDP. The question then is, even if there is a global downturn, why should India be affected when its dependence on external demand is so limited? 8.The answer to both the above frequently-asked questions lies in globalization. Let me explain. First, India's integration into the world economy over the last decade has been remarkably rapid. Integration into the world implies more than just exports. Going by the common measure of globalization, India's two-way trade (merchandize exports plus imports), as a proportion of GDP, grew from 21.2 per cent in 1997-98, the year of the Asian crisis, to 34.7 per cent in 2007-08. 9.Second, India's financial integration with the world has been as deep as India's trade globalization, if not deeper. If we take an expanded measure of globalization, that is the ratio of total external transactions (gross current account flows plus gross capital flows) to GDP, this ratio has more than doubled from 46.8 per cent in 1997-98 to 117.4 per cent in 2007-08. 10.Importantly, the Indian corporate sector's access to external funding has markedly increased in the last five years. Some numbers will help illustrate the point. In the five-year period 2003-08, the share of investment in India's GDP rose by 11 percentage points. Corporate savings financed roughly half of this, but a significant portion of the balance financing came from external sources. While funds were available domestically, they were expensive relative to foreign funding. On the other hand, in a global market awash with liquidity and on the promise of India's growth potential, foreign investors were willing to take risks and provide funds at a lower cost. Last year (2007/08), for example, India received capital inflows amounting to over 9 per cent of GDP as against a current account deficit in the balance of payments of just 1.5 per cent of GDP. These capital flows, in excess of the current account deficit, evidence the importance of external financing and the depth of India's financial integration. 11.So, the reason India has been hit by the crisis, despite mitigating factors, is clearly India's rapid and growing integration into the global economy. How Has India Been Hit By the Crisis? 12.The contagion of the crisis has spread to India through all the channels the financial channel, the real channel, and importantly, as happens in all financial crises, the confidence channel. 13.Let us first look at the financial channel. India's financial markets - equity markets, money markets, forex markets and credit markets - had all come under pressure from a number of directions. First, as a consequence of the global liquidity squeeze, Indian banks and corporates found their overseas financing drying up, forcing corporates to shift their credit demand to the domestic banking sector. Also, in their frantic search for substitute financing, corporates withdrew their investments from domestic money market mutual funds putting redemption pressure on the mutual funds and down the line on non-banking financial companies (NBFCs) where the MFs had invested a significant portion of their funds. This substitution of overseas financing by domestic financing brought both money markets and credit markets under pressure. Second, the forex market came under pressure because of reversal of capital flows as part of the global deleveraging process. Simultaneously, corporates were converting the funds raised locally into foreign currency

to meet their external obligations. Both these factors put downward pressure on the rupee. Third, the Reserve Bank's intervention in the forex market to manage the volatility in the rupee further added to liquidity tightening. 14.Now let me turn to the real channel. Here, the transmission of the global cues to the domestic economy has been quite straight forward through the slump in demand for exports. The United States, European Union and the Middle East, which account for three quarters of India's goods and services trade are in a synchronized down turn. Service export growth is also likely to slow in the near term as the recession deepens and financial services firms traditionally large users of outsourcing services are restructured. Remittances from migrant workers too are likely to slow as the Middle East adjusts to lower crude prices and advanced economies go into a recession. 15 Beyond the financial and real channels of transmission as above, the crisis also spread through the confidence channel. In sharp contrast to global financial markets, which went into a seizure on account of a crisis of confidence, Indian financial markets continued to function in an orderly manner. Nevertheless, the tightened global liquidity situation in the period immediately following the Lehman failure in mid-September 2008, coming as it did on top of a turn in the credit cycle, increased the risk aversion of the financial system and made banks cautious about lending. 16. The purport of the above explanation is to show how, despite not being part of the financial sector problem, India has been affected by the crisis through the pernicious feedback loops between external shocks and domestic vulnerabilities by way of the financial, real and confidence channels.

How Have We Responded to the Challenge?

17. Let me now turn to how we responded to the crisis. The failure of Lehman Brothers in mid-September was followed in quick succession by several other large financial institutions coming under severe stress. This made financial markets around the world uncertain and unsettled. This contagion, as I explained above, spread to emerging economies, and to India too. Both the government and the Reserve Bank of India responded to the challenge in close coordination and consultation. The main plank of the government response was fiscal stimulus while the Reserve Bank's action comprised monetary accommodation and counter cyclical regulatory forbearance.

Monetary policy response :18. The Reserve Bank's policy response was aimed at containing the contagion from the outside - to keep the domestic money and credit markets functioning normally and see that the liquidity stress did not trigger solvency cascades. In particular, we targeted three objectives: first, to maintain a comfortable rupee liquidity position; second, to augment foreign exchange liquidity; and third, to maintain a policy framework that would keep credit delivery on track so as to arrest the moderation in growth. This marked a reversal of Reserve Bank's policy stance from monetary tightening in response to heightened inflationary pressures of the previous period to monetary easing in response to easing inflationary pressures and moderation in growth in the current cycle. Our measures to meet the above objectives came in several policy packages starting midSeptember 2008, on occasion in response to unanticipated global developments and at other times in anticipation of the impact of potential global developments on the Indian markets. 19. Our policy packages included, like in the case of other central banks, both conventional and unconventional measures. On the conventional side, we reduced the policy interest rates aggressively and rapidly, reduced the quantum of bank reserves impounded by the central bank and expanded and liberalized the refinance facilities for export credit. Measures aimed at managing forex liquidity included an upward adjustment of the interest rate ceiling on the foreign currency deposits by non-resident Indians, substantially relaxing the external commercial

borrowings (ECB) regime for corporates, and allowing non-banking financial companies and housing finance companies access to foreign borrowing. 20. The important among the many unconventional measures taken by the Reserve Bank of India are a rupee-dollar swap facility for Indian banks to give them comfort in managing their short-term foreign funding requirements, an exclusive refinance window as also a special purpose vehicle for supporting non-banking financial companies, and expanding the lendable resources available to apex finance institutions for refinancing credit extended to small industries, housing and exports.

Government's fiscal stimulus:21. Over the last five years, both the central and state governments in India have made a serious effort to reverse the fiscal excesses of the past. At the heart of these efforts was the Fiscal Responsibility and Budget Management (FRBM) Act which mandated a calibrated road map to fiscal sustainability. However, recognizing the depth and extraordinary impact of this crisis, the central government invoked the emergency provisions of the FRBM Act to seek relaxation from the fiscal targets and launched two fiscal stimulus packages in December 2008 and January 2009. These fiscal stimulus packages, together amounting to about 3 per cent of GDP, included additional public spending, particularly capital expenditure, government guaranteed funds for infrastructure spending, cuts in indirect taxes, expanded guarantee cover for credit to micro and small enterprises, and additional support to exporters. These stimulus packages came on top of an already announced expanded safety-net for rural poor, a farm loan waiver package and salary increases for government staff, all of which too should stimulate demand.

Impact of monetary measures:22. Taken together, the measures put in place since mid-September 2008 have ensured that the Indian financial markets continue to function in an orderly manner. The cumulative amount of primary liquidity potentially available to the financial system through these measures is over US$ 75 bln or 7 per cent of GDP. This sizeable easing has ensured a comfortable liquidity position starting mid-November 2008 as evidenced by a number of indicators including the weightedaverage call money rate, the overnight money market rate and the yield on the 10-year benchmark government security. Taking the signal from the policy rate cut, many of the big banks have reduced their benchmark prime lending rates. Bank credit has expanded too, faster than it did last year. However, Reserve Banks rough calculations show that the overall flow of resources to the commercial sector is less than what it was last year. This is because, even though bank credit has expanded, it has not fully offset the decline in non-bank flow of resources to the commercial sector.

Evaluating the response:23. In evaluating the response to the crisis, it is important to remember that although the origins of the crisis are common around the world, the crisis has impacted different economies differently. Importantly, in advanced economies where it originated, the crisis spread from the financial sector to the real sector. In emerging economies, the transmission of external shocks to domestic vulnerabilities has typically been from the real sector to the financial sector. Countries have accordingly responded to the crisis depending on their specific country circumstances. Thus, even as policy responses across countries are broadly similar, their precise design, quantum,

sequencing and timing have varied. In particular, while policy responses in advanced economies have had to contend with both the unfolding financial crisis and deepening recession, in India, our response has been predominantly driven by the need to arrest moderation in economic growth.

What is the outlook for India?

24. The outlook for India going forward is mixed. There is evidence of economic activity slowing down. Real GDP growth has moderated in the first half of 2008/09. The services sector too, which has been our prime growth engine for the last five years, is slowing, mainly in construction, transport and communication, trade, hotels and restaurants sub-sectors. For the first time in seven years, exports have declined in absolute terms for three months in a row during October-December 2008. Recent data indicate that the demand for bank credit is slackening despite comfortable liquidity in the system. Higher input costs and dampened demand have dented corporate margins while the uncertainty surrounding the crisis has affected business confidence. The index of industrial production has shown negative growth for two recent months and investment demand is decelerating. All these factors suggest that growth moderation may be steeper and more extended than earlier projected. 25. In addressing the fall out of the crisis, India has several advantages. Some of these are recent developments. Most notably, headline inflation, as measured by the wholesale price index, has fallen sharply, and recent trends suggest a faster-than-expected reduction in inflation. Clearly, falling commodity prices have been the key drivers behind the disinflation; however, some contribution has also come from slowing domestic demand. The decline in inflation should support consumption demand and reduce input costs for corporates. Furthermore, the decline in global crude prices and naphtha prices will reduce the size of subsidies to oil and fertilizer companies, opening up fiscal space for infrastructure spending. From the external sector perspective, it is projected that imports will shrink more than exports keeping the current account deficit modest. 26. There are also several structural factors that have come to India's aid. First, notwithstanding the severity and multiplicity of the adverse shocks, India's financial markets have shown admirable resilience. This is in large part because India's banking system remains sound, healthy, well capitalized and prudently regulated. Second, our comfortable reserve position provides confidence to overseas investors. Third, since a large majority of Indians do not participate in equity and asset markets, the negative impact of the wealth loss effect that is plaguing the advanced economies should be quite muted. Consequently, consumption demand should hold up well. Fourth, because of India's mandated priority sector lending, institutional credit for agriculture will be unaffected by the credit squeeze. The farm loan waiver package implemented by the Government should further insulate the agriculture sector from the crisis. Finally, over the years, India has built an extensive network of social safety-net programmes, including the flagship rural employment guarantee programme, which should protect the poor and the returning migrant workers from the extreme impact of the global crisis.

RBI's Policy Stance :27. Going forward, the Reserve Bank's policy stance will continue to be to maintain comfortable rupee and forex liquidity positions. There are indications that pressures on mutual funds have eased and that NBFCs too are making the necessary adjustments to balance their assets and liabilities. Despite the contraction in export demand, we will be able to manage our balance of payments. It is the Reserve Bank's expectation that commercial banks will take the signal from the policy rates reduction to adjust their deposit and lending rates in order to keep credit flowing to productive sectors. In particular, the special refinance windows opened by the Reserve Bank for the MSME (micro, small and medium enterprises) sector, housing sector and export sector should

see credit flowing to these sectors. Also the SPV set up for extending assistance to NBFCs should enable NBFC lending to pick up steam once again. The government's fiscal stimulus should be able to supplement these efforts from both supply and demand sides.

When the turn around comes

28. Over the last five years, India clocked an unprecedented nine per cent growth, driven largely by domestic consumption and investment even as the share of net exports has been rising. This was no accident or happenstance. True, the benign global environment, easy liquidity and low interest rates helped, but at the heart of India's growth were a growing entrepreneurial spirit, rise in productivity and increasing savings. These fundamental strengths continue to be in place. Nevertheless, the global crisis will dent India's growth trajectory as investments and exports slow. Clearly, there is a period of painful adjustment ahead of us. However, once the global economy begins to recover, India's turn around will be sharper and swifter, backed by our strong fundamentals and the untapped growth potential. Meanwhile, the challenge for the government and the RBI is to manage the adjustment with as little pain as possible.

Monitory policy during recession

Monetary And Credit Policy Operations:Monetary management during 2008-09 had to contend with the challenges of high inflation in the first half and the high speed and magnitude of the external shock and its spill-over effects through the real, financial and confidence channels in the second half. Policy initiatives by the Reserve Bank were aimed at providing ample rupee liquidity, ensuring comfortable foreign exchange liquidity and maintaining a market environment conducive for the continued flow of credit at viable rates to productive sectors of the economy. The large government borrowings resulting from the fiscal stimulus, and net capital outflows in the second half of the year warranted simultaneous offsetting operations by the Reserve Bank in different markets, particularly the money market, the government securities market and the foreign exchange market. The flexible use of multiple instruments enabled the Reserve Bank to steer the liquidity and interest rate conditions amidst uncertain global macroeconomic environment. III.1 The stance of monetary policy shifted in phases in response to multiple challenges that emerged during the course of the year in the form of significant changes in both outcome and outlook relating to inflation, growth and stability of financial markets. Both the Government and the Reserve Bank responded to the challenges decisively, swiftly and in close coordination and consultation. The policy stance shifted from monetary tightening in response to the elevated inflationary pressures in the first half of 2008-09 to monetary easing in the second half as significant moderation in inflationary pressures created the scope for enhancing the magnitude and speed of response to the weakening growth impulses as well as to occasional disorderly pressures in financial markets. The changing stance of policy must be seen in the context of the previous period of gradual withdrawal of monetary accommodation from September 2004 till August 2008 during which the repo/reverse repo rates had been increased by 300/150 basis points, the cash reserve ratio (CRR) for scheduled banks had been raised by 450 basis points, and risk weights and general provisioning requirements for standard advances were raised in the case of specific sectors. In response to the knock-on effects of the global economic crisis on the Indian economy, since October 11, 2008 the Reserve Bank has reduced the CRR by a cumulative 400 basis points to 5.0 per cent of NDTL, the repo rate by 425 basis points to 4.75 per cent and the reverse repo rate by 275 basis points to 3.25 per cent.

III.2 The magnitude and the pace of the response have to be seen particularly in the context of the fact that despite significant moderation, Indias growth remained one of the highest in the world, at 6.7 per cent for the full year, and the minimum quarterly growth during the year was 5.8 per cent. Thus, the policy stance clearly reflected the forward looking undertone, particularly the expectations of more prolonged adverse external conditions in the face of no visible risks to inflation. Moreover, the gradual withdrawal of monetary accommodation that had started from September 2004 was a signal of the Reserve Banks assessment of possible overheating, even though subsequent monetary tightening was in response to building of inflationary pressures up to mid 2008-09. The need for monetary policy cycle remaining ahead of the business cycle, which emerged as a lesson from the current global crisis, was already evident in the Reserve Banks actual conduct of policy even before the crisis. Similarly, the current post-crisis suggestion for use of pro-cyclical provisioning norms and counter-cyclical regulations as a bulwark against financial instability had already been implemented in India prior to the crisis.

Organisational Framework for Monetary Policy

Technical Advisory Committee III.3 The Reserve Bank had constituted a Technical Advisory Committee (TAC) on Monetary Policy in July 2005 with four external experts in the areas of monetary economics, central banking, financial markets and public finance with a view to strengthening the consultative process in the conduct of monetary policy. The TAC reviews macroeconomic and monetary developments and advises the Reserve Bank on the stance of monetary policy and monetary measures. The Committee was reconstituted in April 2007 and the membership of the Committee was expanded by including two additional members of the Central Board of the Reserve Bank and one more external expert. The tenure of the reconstituted Committee was extended up to June 30, 2009. The Reserve Bank has now reconstituted the TAC on Monetary Policy with effect from July 1, 2009 with a view to obtaining continued benefit of advice from external experts. The tenure of the Committee is for two years, i.e., up to June 30, 2011. The Committee is headed by Governor, with the Deputy Governor in charge of monetary policy as the vice-chairman. The other Deputy Governors of the Bank are also members of the Committee. The TAC normally meets once in a quarter. However, the meeting of the TAC could be held at any other time also, if necessary. The role of the TAC is advisory in nature.The responsibility, accountability and time path of the decision making remain entirely with the Reserve Bank. In addition to the quarterly pre-policy meeting where the TAC members contributed to enriching the inputs and processes of policy setting, there were two special meetings held on June 23, 2008 and December 17, 2008 in the context of the evolving global economic crisis and to advise the Reserve Bank on the stance of monetary policy. Pre-policy Consultation Meetings III.4 It has been the endeavour of the Reserve Bank to make the policy making process more consultative. As part of this outreach and the Reserve Banks growing emphasis on strengthening the consultative process of monetary policy formulation, the Reserve Bank has constituted a process of consulting different entities/ experts before each policy Statement/Review. Accordingly, with effect from October 2005, the Reserve Bank has introduced pre-policy consultation meetings with the Indian Banks Association (IBA), market participants (Fixed Income Money Market and Derivatives Association of India, Foreign Exchange Dealers Association of India, and Primary Dealers Association of India), leaders of trade and industry and other institutions (urban co-operative banks, non-banking financial companies, rural co-operatives

and regional rural banks). This consultative process has contributed to enriching the policy formulation process and enhanced the effectiveness of monetary policy measures. III.5 The specific aspects of monetary policy operations of the Reserve Bank during 2008-09 and 2009-10 so far and the context against which policy decisions were formulated and implemented have been outlined in this chapter.

MONETARY POLICY OPERATIONS: 2008-09

III.6 The conduct of monetary policy during 2008-09 witnessed two distinctly different phases. The first phase up to mid-September 2008 was characterised by monetary tightening, reflecting the need to contain high inflation and adverse inflation expectations. The policy stance during the second phase starting from mid-September 2008 was guided by the ramifications of the global financial crisis for economic growth and financial markets in India.

Annual Policy Statement for 2008-09

III.7 The Annual Policy Statement (APS) for 2008-09 (April 29, 2008) had noted that there were significant shifts in both global and domestic developments in relation to initial assessments presented for 2007-08. In the backdrop of the deteriorating outlook for the global economy, the APS highlighted that the dangers of global recession had increased at the time of announcement of the Third Quarter Review of January 2008. It also added that since January 2008, the upside pressures from international food and energy prices appeared to have imparted a degree of persistent upward pressure to inflation globally. On the domestic front, the outlook remained positive up to January 2008, with some indications of moderation in industrial production, services sector activity, business confidence and non-food credit thereafter. III.8 The initial forecast predicted a near-normal rainfall in the 2008 South-West monsoon season, suggesting sustenance of the trend growth in agriculture. The Statement noted that the expected decline in world GDP growth in 2008 in relation to the preceding year could temper the prospects of growth in the industrial and services sectors at the margin, although the underlying momentum of expansion in these sectors was likely to be maintained. In view of this overall macroeconomic scenario, the APS placed real GDP growth during 2008-09 in the range of 8.0 to 8.5 per cent for policy purposes, assuming that (a) global financial and commodity markets and real economy would be broadly aligned with the central scenario as assessed at that stage; and (b) domestically, normal monsoon conditions may prevail. In view of the lagged and cumulative effects of monetary policy on aggregate demand and assuming that supply management would be conducive, capital flows had to be managed actively and in the absence of new adversities emanating in the domestic or global economy, the Policy Statement indicated that the monetary policy endeavour would be to bring down inflation from the prevailing high level of above 7.0 per cent to around 5.5 per cent in 2008-09, with a preference for bringing it close to 5.0 per cent as soon as possible, recognising the evolving complexities in globally-transmitted inflation. The Statement also added that going forward, the Reserve Bank would continue to condition policy and perceptions for inflation in the range of 4.0-4.5 per cent so that an inflation rate of around 3.0 per cent became a medium-term objective consistent with Indias broader integration into the global economy and with the goal of maintaining self-accelerating growth over the medium-term.

III.9 The Statement also noted that money supply remained above indicative projections persistently through 2005-07 on the back of sizeable accretions to the Reserve Banks foreign exchange assets and a cyclical acceleration in credit and deposit growth. In view of the resulting monetary overhang, the Statement mentioned that there was a need to moderate monetary expansion in the range of 16.5-17.0 per cent in 2008-09 in consonance with the outlook on growth and inflation so as to ensure macroeconomic and financial stability. Consistent with the projections of money supply, the growth in aggregate deposits for 2008-09 was placed at around 17.0 per cent or around Rs.5,50,000 crore. Based on the overall assessment of the sources of funding and the overall credit requirements of various productive sectors of the economy, the growth of non-food credit, including investments in bonds/debentures/ shares of public sector undertakings and private corporate sector and commercial paper (CP), was placed at around 20.0 per cent for 2008-09 consistent with the monetary projections. III.10 Given the unprecedented complexities involved and the heightened uncertainties, a number of factors influenced the stance of monetary policy for 2008-09. First, there was the immediate challenge of escalated and volatile food and energy prices, which possibly contained some structural components apart from cyclical components. Second, while demand pressures persisted, there was some improvement in the domestic supply response. Third, previous initiatives in regard to supply-management by the Government of India and monetary measures by the Reserve Bank were in the process of impacting the economy. Fourth, policy responses emphasised managing expectations in an environment of the evolving global and domestic uncertainties. Fifth, monetary policy had demonstrated a resolve to act decisively on a continuing basis to curb any signs of adverse developments with regard to inflation expectations. III.11 In view of the macroeconomic conditions and then prevailing inflationary condition, the Reserve Bank continued with its pre-emptive and calibrated approach to contain inflation expectations, and raised CRR by 25 basis points to 8.25 per cent with effect from the fortnight beginning May 24, 2008. This followed the hike in the CRR by 25 basis points each effective from the fortnights beginning April 26 and May 10, 2008 respectively. The Reserve Bank announced on June 11, 2008 an increase in the repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points to 8.00 per cent from 7.75 per cent with immediate effect. III.12 Inflation, based on variations in the wholesale price index (WPI) on a year-on-year basis, increased to 11.05 per cent as on June 7, 2008 from 7.75 per cent at end-March 2008 and 4.28 per cent a year ago. At that juncture, the overriding priority for monetary policy was to eschew any further intensification of inflationary pressures and to firmly anchor inflation expectations and to urgently address aggregate demand pressures which appeared to be strongly in evidence. Accordingly, the Reserve Bank increased the repo rate under the LAF from 8.00 per cent to 8.50 per cent effective from June 25, 2008. The CRR was also raised by 50 basis points to 8.75 per cent in two stages, 25 basis points each, effective from the fortnights beginning July 5 and July 19, 2008 respectively.

First Quarter Review 2008-09:III.13 The First Quarter Review of the Annual Statement on Monetary Policy for 2008-09 (July 29, 2008) noted that after the announcement of the Annual Policy Statement in April 2008, global as well as domestic developments on both supply and demand sides pointed to accentuation of inflationary pressures, especially in terms of inflation expectations. In an environment of surging global inflation, and with domestic inflation also rising to a 13-year high, the Reserve Bank noted with concern that inflation had emerged as the biggest risk to the global outlook, having risen to

very high levels across the world, not generally seen for a couple of decades. III.14 The First Quarter Review stated that inflation was expected to moderate from the then high levels in the months to come and a noticeable decline in inflation was expected towards the last quarter of 2008-09. Accordingly, it emphasised that while the policy actions would aim to bring down the prevailing intolerable level of inflation to a tolerable level of below 5.0 per cent as soon as possible and around 3.0 per cent over the medium-term, at that juncture a realistic policy endeavour would be to bring down inflation from the then prevailing level of about 11.0-12.0 per cent to a level close to 7.0 per cent by end-March 2009. It stated that taking into account aggregate demand management and supply prospects, the projection of real GDP growth of the Indian economy in 2008-09, in the range of 8.0 to 8.5 per cent as set out in the Annual Policy Statement of April 2008, might prove to be optimistic and hence, for policy purposes, a projection of around 8.0 per cent appeared to be a more realistic scenario, barring domestic or external shocks. III.15 The First Quarter Review emphasised the necessity of moderating monetary expansion and revised the projection for indicative money supply growth in the range of around 17.0 per cent in 2008-09 in consonance with the outlook on growth and inflation so as to ensure macroeconomic and financial stability in the period ahead. III.16 The First Quarter Review noted that in view of the criticality of anchoring inflation expectations, a continuous heightened vigil over ensuing monetary and macroeconomic developments was to be maintained to enable swift responses with appropriate measures as necessary, consistent with the monetary policy stance. Furthermore, in view of the then macroeconomic and overall monetary conditions, the First Quarter Review announced an increase in fixed repo rate under the LAF by 50 basis points from 8.5 per cent to 9.0 per cent with effect from July 30, 2008 and an increase of CRR by 25 basis points to 9.0 per cent with effect from August 30, 2008. III.17 As the global liquidity crisis deepened in September 2008, capital inflows dried up and the demand for credit from the domestic banking system increased, thereby aggravating the liquidity pressures. In the wake of the emerging stress on Indias financial markets as a result of the contagion from the global financial crisis, the immediate challenge for the Reserve Bank was to infuse confidence by augmenting both domestic and foreign exchange liquidity. Accordingly, the Reserve Bank announced the first phase of measures on September 16, 2008, including increase in the interest rate ceilings on FCNR (B) deposits of all maturities and on deposits under the NR(E)RA for one to three years maturity by 50 basis points and other measures to augment liquidity (for details see Chapter II.5, Box II.27). III.18 Liquidity conditions tightened even further after October 7, 2008 as contagion from the US financial crisis spread to Europe and Asia. Globally, money markets froze and the stock markets turned highly volatile. Even coordinated policy actions by monetary authorities in America, Europe, Asia and Australia failed to inspire the confidence of financial markets. In view of the persisting uncertainty in the global financial situation and its impact on India, and continuing demand for domestic market liquidity, the Reserve Bank took further measures in October 2008 including a cumulative reduction of 250 basis points in the CRR effective from the fortnight beginning October 11, further increase in the interest rate ceilings on FCNR (B) deposits of all maturities and on deposits under the NR(E)RA for one to three years maturity by 50 basis points each and other measures to enhance availability of liquidity in the financial system (for details see Chapter II.5, Box II.27). On October 20, 2008 in order to alleviate the pressures on domestic credit markets brought on by the indirect impact of the global liquidity constraint and, in particular, to maintain financial stability, the Reserve Bank decided to reduce the repo rate under the LAF by 100 basis points to 8.0 per cent with immediate effect.

Mid-Term Review 2008-09 III.19 The Mid-Term Review of the Annual Policy Statement 2008-09 (October 24, 2008) was set in the context of several complex and compelling policy challenges as the global financial crisis witnessed unprecedented dimensions. Governments, central banks and financial regulators around the world responded to the crisis with aggressive, radical and unconventional measures to restore calm and confidence to the markets and bring them back to normalcy and stability. III.20 The Mid-Term Review highlighted that Indias financial sector continued to remain stable and healthy. All indicators of financial strength and soundness such as capital adequacy, ratios of non-performing assets (NPA) and return on assets (RoA) for commercial banks were robust. The Review also noted that the global developments, however, had some indirect, knock-on effects on domestic financial markets. III.21 The Mid-Term Review noted that the measures taken since mid-September 2008 substantially assuaged liquidity stress in domestic financial markets arising from the contagion of adverse external developments. The total liquidity support through reductions in the CRR, the temporary accommodation under the SLR and the first instalment of the agricultural debt waiver and debt relief scheme was of the order of Rs.1,85,000 crore. The Review further noted that the cut in the repo rate effected on October 20, 2008 was expected to ease the conditions in the money and credit markets, restore their orderly functioning and sustain financial stability. III.22 The First Quarter Review of July 2008 had placed the projection of real GDP growth in 2008-09 at around 8.0 per cent for policy purposes. The Mid-Term Review noted that since then there had been significant global and domestic developments, which rendered the outlook uncertain, suggesting increased downside risks associated with this projection. Taking these developments and prospects into account, the Mid-Term Review revised the projection of overall real GDP growth for 2008-09 to the range of 7.5-8.0 per cent. III.23 The Mid-Term Review assessed that inflation would remain a concern and emphasised that the Reserve Bank would keep a strong vigil on inflation. Keeping in view the supply management measures taken by the Central Government and the lagged demand response to the monetary policy measures taken by the Reserve Bank over the last one year, the Review maintained the earlier projection of inflation of 7.0 per cent by end-March 2009 for policy purposes. III.24 The Mid-Term Review noted that Indias balance of payments till then reflected strength and resilience in a highly unsettled international environment. Assessing the various factors affecting balance of payments, the Review expected somewhat higher current account deficit in 2008-09 than in the preceding year, but it also expected enough capital inflows to meet the external financing requirement in 2008-09. III.25 The Review expressed the Reserve Banks concerns about the depth of global financial crisis and its endeavour to remain proactive, and take measures to manage the unfolding developments by easing pressures stemming from the global crisis. Against the backdrop of the ensuing global and domestic developments and in the light of measures taken by the Reserve Bank over September-October 2008, the Bank Rate, the repo rate and the reverse repo rate and the cash reserve ratio (CRR) were kept unchanged. III.26 Early signs of a global recession became evident by late October 2008 as global financial conditions continued to remain uncertain and unsettled. Globally, commodity prices, including crude oil prices, began to abate which reduced domestic inflationary pressures. It was also

important to ensure that credit requirements for productive purposes were adequately met so as to support the growth momentum of the economy. Accordingly, the Reserve Bank announced a series of measures on November 1, 2008 including reduction in the repo rate under the LAF by 50 basis points to 7.5 per cent with effect from November 3, 2008, reduction in the CRR by 100 basis points to 5.5 per cent of NDTL and the relaxation of the SLR, on a temporary basis earlier, was made permanent and reduced to 24 per cent of NDTL effective from November 8, 2008. By midNovember 2008, there were indications that the global slowdown was deepening with a larger than expected impact on the domestic economy, particularly for the medium and small industry sector and export-oriented units. In the context of these developments, for augmenting rupee and forex liquidity, and strengthening and improving credit delivery mechanisms, the Reserve Bank announced measures on November 15, 2008 including increase in interest rate ceilings on FCNR(B) and NR(E)RA deposits by 75 basis points each to Libor/ swap rates plus 100 basis points and Libor/swap rates plus 175 basis points, respectively. On a further review of the then prevailing liquidity conditions, the Reserve Bank again announced measures for liquidity management and improving credit flows on November 28, 2008. III.27 The global outlook deteriorated further during December 2008 indicating that the recession would be deeper and the recovery longer than anticipated earlier. With indications of slowing down of the domestic economic activity while inflationary pressures abated significantly, the Reserve Bank initiated a series of measures on December 6 and 11, 2008 which included reduction in the repo rate under the LAF by 100 basis points to 6.5 per cent, reduction in the reverse repo rate by 100 basis points from 6.0 per cent to 5.0 per cent, effective from December 8, 2008 and measures relating to refinance facilities (for details see Chapter II.5, Box II.27). These measures were aimed at improving the credit flow to productive sectors to sustain the growth momentum. III.28 While domestic financial markets continued to function in an orderly manner, Indias growth trajectory was impacted by the global recession. The Reserve Banks monetary policy stance recognised the concerns over rising credit risk together with the slowing of economic activity which appeared to affect credit growth. Accordingly, in order to stimulate growth, the Reserve Bank took the following measures on January 2, 2009: (i) the repo rate under the LAF was reduced by 100 basis points to 5.5 per cent with effect from January 5, 2009; (ii) the reverse repo rate under the LAF was reduced by 100 basis points to 4.0 per cent with effect from January 5, 2009; and (iii) the CRR was reduced from 5.5 per cent to 5.0 per cent of NDTL effective from the fortnight beginning January 17, 2009.

MONETARY POLICY OPERATIONS: 2009-10:III.37 The Annual Policy Statement (APS) 2009- 10 (April 21, 2009) was presented in the midst of exceptionally challenging circumstances in the global economy. It noted that the global economic crisis had called into question several fundamental assumptions and beliefs governing economic resilience and financial stability. What started off as turmoil in the financial sector of the advanced economies had snowballed into the deepest and most widespread financial and economic crisis of the last 60 years. The Statement noted that although the governments and central banks around the world responded to the crisis through both conventional and unconventional fiscal and monetary measures, the global financial situation remained uncertain and the global economy continued to cause anxiety for several reasons. There was no clear estimate of the quantum of tainted assets, and doubts persisted on whether the initiatives underway were sufficient to restore the stability of the financial system. There was a continued debate on the adequacy of the fiscal stimulus packages across countries, and their effectiveness in arresting the

downturn, reversing job losses and reviving consumer confidence. III.38 The Statement mentioned that both the Government and the Reserve Bank responded to the challenge of minimising the impact of the crisis on India in co-ordination and consultation. The policy responses in India beginning September 2008 were designed largely to mitigate the adverse impact of the global financial crisis on the Indian economy. The conduct of monetary policy had to contend with the high speed and magnitude of the external shock and its spill-over effects through the real, financial and confidence channels. The evolving stance of policy had been increasingly conditioned by the need to preserve financial stability while arresting the moderation in the growth momentum. The Policy Statement also mentioned that taking a cue from the Reserve Banks monetary easing; most banks started to reduce their deposit and lending rates. III.39 It was viewed that the fiscal and monetary stimulus measures initiated during 2008-09 coupled with lower commodity prices could cushion the downturn in the growth momentum during 2009-10 by stabilising domestic economic activity to some extent. While based on the available information it was found that domestic financing conditions had improved, external financing conditions were expected to remain tight. Private investment demand was, therefore, expected to remain subdued. On balance, with the assumption of normal monsoon, the Statement, for policy purpose, projected real GDP growth for 2009-10 at around 6.0 per cent. III.40 On account of a slump in global demand, pressures on global commodity prices abated markedly around the world by the end of the fiscal year 2008-09. The sharp decline in prices of crude oil, metals, foodgrains, cotton and cement had influenced inflation expectations in most parts of the world. This was also reflected in the domestic WPI inflation reaching close to zero. Keeping in view the global trend in commodity prices and domestic demand-supply balance, the Statement projected WPI inflation at around 4.0 per cent by end-March 2010. The Statement emphasised that monetary policy in India would continue to condition and contain perceptions of inflation in the range of 4.0-4.5 per cent so that an inflation rate of around 3.0 per cent becomes the medium-term objective. III.41 Monetary and credit aggregates had exhibited deceleration from their peak levels in October 2008. The liquidity overhang emanating from the earlier surge in capital inflows had substantially moderated in 2008-09. The Reserve Bank was committed to provide ample liquidity for all productive activities on a continuous basis. As the upside risks to inflation declined, monetary policy started responding to slackening economic growth in the context of significant global stress. Accordingly, for policy purposes, the Statement projected money supply (M3) growth at 17.0 per cent for 2009-10. III.42 The Annual Policy Statement recognised that while continuing to support adequate liquidity in the economy, the Reserve Bank would have to ensure that as economic growth gathers momentum, the excess liquidity is rolled back in an orderly manner. Based on the overall assessment of the macroeconomic situation, the Policy Statement emphasised the need to ensure a policy regime that would enable credit expansion at viable rates while preserving credit quality so as to support the return of the economy to a high growth path. It indicated that the Reserve Bank would continuously monitor the global and domestic conditions and respond swiftly and effectively through policy adjustments as warranted so as to minimise the impact of adverse developments and reinforce the impact of positive developments. The stance further emphasised to maintain a monetary and interest rate regime supportive of price stability and financial stability taking into account the emerging lessons of the global financial crisis. Against the backdrop of global and domestic developments, the Reserve Bank reduced the repo rate under the LAF by 25

basis points from 5.0 per cent to 4.75 per cent with effect from April 21, 2009. The reverse repo rate under the LAF was also reduced by 25 basis points from 3.5 per cent to 3.25 per cent with effect from April 21, 2009.

Changing Stance of Monetary Policy in India:2008-09 Annual Policy Statement (April 2008)
To ensure a monetary and interest rate environment that accords high priority to price stability well-anchored inflation expectations and orderly conditions in financial markets while being conducive to continuation of the growth momentum. To respond swiftly on a continuing basis to the evolving constellation of adverse international developments and to the domestic situation impinging on inflation expectations, financial stability and growth momentum, with both conventional and unconventional measures, as appropriate. To emphasise credit quality as well as credit delivery, in particular, for employmentintensive sectors, while pursuing financial inclusion. To ensure a monetary and interest rate environment that accords high priority to price stability, well-anchored inflation expectations and orderly conditions in financial markets while being conducive to continuation of the growth momentum. To respond swiftly on a continuing basis to the evolving constellation of adverse international developments and to the domestic situation impinging on inflation expectations, financial stability and growth momentum, with both conventional and unconventional measures, as appropriate. To emphasise credit quality as well as credit delivery, in particular, for employmentintensive sectors, while pursuing financial inclusion. Ensure a monetary and interest rate environment that optimally balances the objectives of financial stability, price stability and well-anchored inflation expectations, and growth; Continue with the policy of active demand management of liquidity through appropriate use of all instruments including the CRR, open market operations (OMO), the MSS and the LAF to maintain orderly conditions in financial markets; In the context of the uncertain and unsettled global situation and its indirect impact on the domestic economy in general and the financial markets in particular, closely and continuously monitor the situation and respond swiftly and effectively to developments, employing both conventional and unconventional measures; Emphasise credit quality and credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion. Provision of comfortable liquidity to meet the required credit growth consistent with the overall projection of economic growth.

First Quarter Review (July 2008)

Mid-Term Review (October 2008)

Third Quarter Review (January 2009)

Respond swiftly and effectively with all possible measures as warranted by the evolving global and domestic situation impinging on growth and financial stability. Ensure a monetary and interest rate environment consistent with price stability, wellanchored inflation expectations and orderly conditions in financial markets.

2009-10 Annual Policy Statement (April 2009)

Ensure a policy regime that will enable credit expansion at viable rates while preserving credit quality so as to support the return of the economy to a high growth path. Continuously monitor the global and domestic conditions and respond swiftly and effectively through policy adjustments as warranted so as to minimise the impact of adverse developments and reinforce the impact of positive developments. Maintain a monetary and interest rate regime supportive of price stability and financial stability taking into account the emerging lessons of the global financial crisis. Manage liquidity actively so that the credit demand of the Government is met while ensuring the flow of credit to the private sector at viable rates. Keep a vigil on the trends and signals of inflation, and be prepared to respond quickly and effectively through policy adjustments. Maintain a monetary and interest rate regime consistent with price stability and financial stability supportive of returning the economy to the high growth path.

First Quarter Review (July 2009)

Since September 2008, along with the usual emphasis on containment of inflation and inflation expectations, supporting growth momentum and financial stability, the balance of focus in the policy stance has changed in response to the evolving conditions with greater policy accent on adequate and swift response, using conventional and unconventional measures, to maintain orderly market conditions, and provision of adequate liquidity to support credit growth and aggregate demand without diluting the emphasis on credit quality.

RATE OF RBI:-

Effective since Effective since 1

Bank Rate Bank Rate 2

Reverse Repo Rate Repo Rate Reverse Repo Rate Repo Rate 3 4

Cash Reserve Ratio Statutory Liquidity Cash Reserve Ratio Ratio Statutory Liquidity Ratio 5 6

January 6, 2007 January 31, 2007 February 17, 2007 March 3, 2007 March 30, 2007 April 14, 2007 April 28, 2007 August 4, 2007 November 10, 2007 April 26, 2008 May 10, 2008 May 24, 2008 June 11, 2008 June 25, 2008 July 5, 2008 July 19, 2008 July 30, 2008 August 30, 2008 October 11, 2008 October 20, 2008 October 25, 2008 November 03, 2008 November 08, 2008 December 08, 2008 January 05,2009 January 17,2009 March 05,2009 April 21,2009

6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00

6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 5.00 (-1.00) 4.00 (-1.00) 4.00 3.50 (-0.50) 3.25 (-0.25)

7.25 7.50 (+0.25) 7.50 7.50 7.75 (+0.25) 7.75 7.75 7.75 7.75 7.75 7.75 7.75 8.00 (+0.25) 8.50 (+0.50) 8.50 8.50 9.00 (+0.50) 9.00 9.00 8.00 8.00 7.50 7.50 6.50 5.50 5.50 5.00 4.75 (-0.50) (-0.25) (-1.00) (-1.00) (-0.50) (-1.00) 8.75 5.50

5.50 (+0.25)

25 25 25 25 25 25 25 25 25 25 25 25 25 25

5.75 (+0.25) 6.00 (+0.25) 6.00 6.25 (+0.25) 6.50 (+0.25) 7.00 (+0.50) 7.50 (+0.50) 7.75 (+0.25) 8.00 (+0.25) 8.25 (+0.25) 8.25 8.25 8.50 (+0.25) 8.75 (+0.25)

25 25 25

9.00 (+0.25) 6.50 6.50 6.00 6.00 5.50 (-0.50) 5.50 5.50 5.00 (-0.50) 5.00 5.00 (-0.50) (-2.50)

25 25 25 25 25 24 (-1.00) 24 24 24 24 24

ANALYSIS OF BANKING SECTOR

A small report of Market Capitalization for 31st March, 2009 is also shown here.

Index/Exchange Company Name

CNX INDEX CNX INDEX CNX INDEX CNX INDEX CNX INDEX CNX INDEX CNX INDEX CNX INDEX CNX INDEX CNX INDEX CNX INDEX CNX INDEX TOTAL BANK Axis Bank Ltd. BANK Bank of Baroda BANK Bank of India BANK Canara Bank

Close Price
414.95 234.35 219.4 165.7

Mkt. Cap. in Weightage Rs Mn

148969.17 85365.83 115222.91 67937 414062.52 370343.67 32902.6 97547.75 27584.42 129731.21 677480.68 74176.56 2241324.34 6.65 3.81 5.14 3.03 18.47 16.52 1.47 4.35 1.23 5.79 30.23 3.31 100

BANK HDFC Bank 973.4 Ltd. BANK ICICI Bank 332.8 Ltd. BANK IDBI Bank Ltd. 45.4 BANK Kotak Mahindra Bank Ltd. BANK Oriental Bank of Commerce BANK Punjab National Bank BANK State Bank of India BANK Union Bank of India 282.2 110.1 411.45 1067.1 146.85

KEY FINANCIAL RATIOS OF ICICI BANK:-

RATIOS Dividend Per Share Operating Profit Per Share (Rs) Net Profit Margin Total Assets Turnover Ratios Asset Turnover Ratio Current Ratio Quick Ratio Dividend Payout Ratio Return on Net Worth(%) Earnings Per Share

2009 11.00 48.58 9.74 0.10 5.14 0.13 5.94 36.60 7.58 33.76

2010 12.00 49.80 12.17 0.09 4.60 0.14 14.70 37.31 7.79 36.10

KEY FINANCIAL RATIOS OF SBI

RATIOS Dividend Per Share Operating Profit Per Share (Rs) Net Profit Margin Total Assets Turnover Ratios Asset Turnover Ratio Current Ratio Quick Ratio Dividend Payout Ratio Return on Net Worth(%) Earnings Per Share 2009 29.00 230.04 12.03 0.09 7.20 0.04 5.74 22.90 15.74 143.67 2010 30.00 229.63 10.54 0.09 7.26 0.04 9.07 23.36 13.89 144.37

RATIO

INTERPRETATION
This ratio indicates the short term solvency of the company. The

CURRENT RATIO

standard ratio is 2:1, but the ICICI bank has the ratio of 0.14:1which is good as compare to SBI bank which has a ratio of 0.04 :1.

This statement shows LIQUID RATIO

immediate

short term solvency of the

company. The standard is 1:1.SBI shows 9.70:1 and in the year 2010 and ICICI bank has respectively and ICICI bank has the ratio of 14.70:1. So ICICI bank is good and company will able to pay all immediate obligations

DIVIDEND RATIO

PAYOUT This ratio indicates that company has to pay the dividend in each and every year. The dividend payout ratio of ICICI is 37.31 and SBI is 23.36. Which shows that the dividend policy of ICICI is more than the SBI?

FIXED

ASSET This ratio establishes a relationship between net sales and net fixed asset. This ratio shows how well the fixed asset are utilised. An ICICI bank shows good increase in the ratio as compare to the SBI.

TURNOVER RATIO

This ratio is used to know the operating efficiency of the company. The operating profit. The operating profit of OPERATING PROFIT MARGIN the ICICI is less i.e. 49.80 as compare to the SBI i.e. 23.36 which indicate that the operating efficiency of the SBI is not so good. ET PROFIT MARGIN This profit is calculated after tax and depreciation and this ratio shows the net profit of the company. ICICI bank net profit margin is 12.17 and the SBI is 10.54. Which shows that the SBI has not a good return as compare to ICICI RETRUN ON NET WORTH This ratio shows how much the company get return on their net worth. The ICICI bank has 7.79 and the SBI shows 13.89. This shows that the SBI has a good capital with it.

FINDINGS AND SUGGESSONS

Findings and suggessons:

Our suggestions
Government to increase the aggregate demand should supply the money to common people

and not to banks. By increasing government spendings. By forcing the banks to reduce basic loans. By reducing tax (fiscal measure).
To fight the recession effectively government and RBI should come together with a combo

package of monetary and fiscal measures. to increase liquidity which can be better strategy of banks for their better performance during recession. We have seen Bank stocks getting hammered each passing week. With the Corporate sector exhibiting visible impact of the overall slowdown in the economy, there are understandable concerns on the performance of the banking sector. As I watched the secular hammering of banking stocks, I couldn't help wondering if the pessimism is not being overdone - not all bank stocks deserve equally severe punishments; surely there are some with good performance records getting butchered more than they deserved?

10 Indian industries to do well during recession:In the current global economic slowdown, every sector of business is being affected and is witnessing a hard time. But IKON Marketing Consultants reports that in India there are few sectors which will grow in this adverse situation. AS EVERY business sector is affected by present global crisis and everybody is talking of slow down in business, still in India there are few sectors which will grow in this adverse situation. Lets have a look.

1. Food:No one can survive without basic food material like milk, vegetables and drinking water. Food processing companies will not be affected much and rather will earn profits by increasing the prices. These are the basic needs which we as a common man can not produce by our self.

According to Ministry of Food Processing Industry (MFPI), the food processing industry in India was seeing growth even as the world was facing economic recession. According to the minister, the industry is presently growing at 14 per cent against six to seven per cent growth in 200304.The Indian food market is estimated at over US$ 182 billion and accounts for about two thirds of the total Indian retail market. Further, the retail food sector in India is likely to grow from around US$ 70 billion in 2008 to US$ 150 billion by 2025.

2. Railway:As the aviation sector has been affect much badly and resulting in sharp rise in the air ticket rates the frequent travelers will prefer railways to cut the cost of traveling and this will result in increased traffic in railways and long queues at railway booking counters. The freight traffic of Indian Railways has continued to grow in the last few months, albeit at slow pace, indicating only marginal impact of the global recession on the Indian economy. The railways registered 13.87 per cent growth in revenue to Rs 57,863.90 crore in the first nine months ended December 31, 2008. While total earnings from freight increased by 14.53 per cent at Rs 39,085.22 crore during the period, passenger revenue earnings were up 11.81 per cent at Rs 16,242.44 crore. The railways have enhanced freight revenue by increasing its axle loading, improving customer services and adopting an innovative pricing strategy.

3. PSU Banks:As seen in the private sector much of the job cuts due to global slowdown, its the public sector undertaking (PSU) banks which gained much confidence due to job safety and security. More and more people are likely to turn towards government institutions, particularly banks in the quest for safety and security. A report "Opportunities in Indian Banking Sector", by market research company, RNCOS, forecasts that the Indian banking sector will grow at a healthy compound annual growth rate (CAGR) of around 23.3 per cent till 2011.

4. Education:As education is considered as the basic necessity and in India it is seen as a long term investment by parents and with respect to the demand still there is a huge supply gap. The craze to study in foreign university among the Indian youth still alive which will prompt foreign education institute to target India provided vast young population willing to join. We will see more and more foreign educational institutions coming up in India in recent coming years. Huge government as well as private investment is likely to flow into the Indian educational system. D E Shaw, a US$ 36 billion, global private equity firm is planning to invest around US$ 200 million in the Indian education sector.

5. Telecom:People will not stop to communicate with each other due to global crises rather it has been seen that it will increase much particularly with mobile communication. With cheap cell phones available in the Indian market and cheaper call rates, the sector has become the necessity and primary need of everyday life.

Telecom sector, according to industry estimates, year 2008 started with a subscriber base of 228 million and will likely to end with a subscriber base of 332 million a full century. The telecom industry expects to add at least another 90 million subscribers in 2009 despite of recession. The Indian telecommunications industry is one of the fastest growing in the world and India is projected to become the second largest telecom market globally by 2010.

6. IT:Recent news shown that Indian IT sector will grow 30 to 40 per cent next year. And on the other side to survive in current slowdown, industries have to decrease the cost and for that they will resort to customised IT solutions which will further boost up the software solution demand. India is fast becoming a hot destination for outsourced e-publishing work. As per a Confederation of Indian Industry (CII) report, the industry is growing at an annual rate of 35 per cent and Indias outsourcing opportunities in the value-added and core services such as copy editing, project management, indexing, media services and content deployment will help make the publishing BPO industry worth US$ 1.46 billion by 2010.

7. Health care
India in case of health care facilities still lakes the adequate supply. In health care sector also there is huge gap between demand and supply at all the levels of society. Still there are so many urban areas were you could hardly find any multi specialty hospital. And in case of metros the market sentiments itself created a need of psychological consultation. Healthcare, which is a US$ 35 billion industry in India, is expected to reach over US$ 75 billion by 2012 and US$ 150 billion by 2017. The healthcare industry is interestingly poised as it strives to emerge as a global hub due to the distinct advantages it enjoys in clinical excellence and low costs.

8. Luxury products:The high and affluent class of society will not be affected much by this global crises even if their worth is reduced significantly. They will not change their lifestyle and will not stop spending on luxurious goods. So luxurious product market will not be affected and in fact to maintain the lifestyle those affluent will spend more for it. Luxury car makers are pouring in to woo the nouveau riche (Audi, BMW are the most recent entrants).

9. M&A & Marketing Consultants:As in the current business slow down survival will be the main focus, the marketing and management consultants will be called for to reduce the costs and to show the ways to survive and stay in market. Others may join hands to fight with this situation together will call for the Marketing & M&A consultants. In a booming market there are growth strategies and M&A opportunities to advise on. When businesses are cutting back, consultancies will be right there to help clients decide where to wield the axe. According to Ministry of Commerce and Industrys estimation, the current size of consulting industry in India is about Rs 10000 crores including exports and is expected to grow further at a CAGR of aproximately 25 per cent in next few years.

10. Media and Entertainment In current bad times, where people are losing jobs and getting enough time to watch TV, they will seek entertainment at home and hence advertising revenues will increase for the commercial channels. Also businesses like production of religious texts and religious materials, religious channels will do well. The TRP of religious channels will increase compare to the other entertaining/commercial channels. According to a report published by the Federation of Indian Chambers of Commerce and Industry (FICCI), the Indian M&E industry is expected to grow at a compound annual growth rate (CAGR) of 18 per cent to reach US$ 23.81 billion by 2012. According to the PWC report, the television industry was worth US$ 5. 48 billion in 2007, recording a growth of 18 per cent over 2006. It is further likely to grow by 22 per cent over the next five years and be worth US$ 12. 34 billion by 2012.

Conclusion

Conclusion
For India, it could mean a further appreciation in the rupee Vis--Vis the US dollar and a darkening of business outlook for sectors dependent on US companies. The overall impact of a US slowdown on India would, however, be minimal as the factors driving growth here are more local in nature. Unlike the rest of Asia, India is a strong domestic demand story, so any slowing in the US is likely to have a more muted impact on India. Strong growth in domestic consumption and significant spending on infrastructure are the two pillars of Indias growth story. No sector has a dominant influence on earnings growth and risks to our estimate are limited. Corporate India is also learning to master the art of efficient capital management, reduction in costs and delivery of value-added services to sustain profit margins. Further, interest rates are expected to be stable primarily due to control over inflation and proactive measures undertaken by the RBI. Over the past couple of months, fears of a slowdown in the United States of America have increased. The impact of the sub prime crisis along with a slowdown in mortgages has led to a significant lowering of growth estimates. Since the United States dominates the global economy, any slowdown there would have an impact on most of the global economic variables.

Bibliography

Websites:-

a. www.moneycontrol.com b. www.nseindia.com c. www.icicidirect.com d. www.investopedia.com