Well, bank can lend as much as it can in order to increase its business but lending to those who couldn’t afford to repay the debt is certainly a matter of great concern. In 2008, Subprime lending was the contributory factor for the global economic meltdown.
Subprime advances are quiet costlier than normal advances. Subprime loans are made to borrowers who do not qualify for ordinary loans because of bad credit history or some other reason. There is a higher risk of default on subprime loans.
This time around scores of factors are contributing to the present turbulence in the global economy. Greece’s at one hand grappling with its huge debt burden and at the other hand Chinese stock markets are plunging at rocket’s pace. A conspicuous sell off is continuing till date in Hang Seng index; the Chinese stock market. China's main stock index, which closed 8.5% lower on Monday, has casted into a negative territory. Investors are being rattled by these topical developments.
Recently, China’s central bank, the people’s bank of China has devalued its national currency “Yuan” to captivate exports so that it can improve upon its present economic situation. Its entire economy is in shambles at this point in time.
India as one of the prominent trading partners of China has to bear with the Chinese’s tenuous economic position. Yesterday, it was a black Monday in the history of stock market in India. Global market succumbs to the pressure as Chinese stock crumbled 8.9 pc, wiping all of their 2015 gains. Indian stock market witnessed the largest intraday crash on Monday in percentage terms in six years. Today, market is somewhat in a mood of rallying back to settle down the turbulence that has sent bearish sentiments among the investors who have lost 7 lakh crore rupees in one day.
RBI governor, Dr. Raghuram Rajan has predicted and also warned before about the present economic situation but hardly it had fallen on someone’s ear.
However, he has reiterated that this weak position will be strengthen as the market indicators are quiet positive. Meanwhile, Arun Jaitly stepped in to give solace to the unnerved investors. Raguram Rajan said the central bank could make use of $ 350 billion to rein in the rupee volatility and assured that the country was in a “sweet spot” with all its fundamentals.
Written By:
Rohan Anand
