Global Economic Crisis

Slide 1

What

Why

How

What

Why

HowBy-Roshan Prabhakar-Sundar Raghavan-Shubha N-Chaitra K

The Great American Dream

Soaring Real Estate Prices

Easy Availability of Loans

&

Securitization of Mortgages

Credit Rating Agencies

Mortgage Backed Securities / Credit Debt Obligations

Big Investors

Sold To

Ratings

CDOs MBS

Swaps

Ratings

Credit Default

Swaps

More Loans and More Securitization

Securitization

Increasing Interest Rates and Increasing EMIs

Increasing Interest Rates

Leading To

Increasing EMIs

Mortgage Defaults and Foreclosures

Mortgage Defaults

Foreclosures

Claims on CDS pile up

Mortgage Defaults

How did the MortgageDefault begin?

MindTree Ltd

Dream home for everyone!

--Home loans withoutproper background

verification of borrowers

--At Floating Rates

Mid 2006 inflation increases

Fed increases the interest rates, leading toincrease in the interest

on home loans

Banks were left with no

option but to start writing off the loans

Majority of theborrowers

start defaulting

Piling of Mortgage Defaults

A falling Real Estate Regime and Write Downs

Falling Home PricesInvestors sitting on a pile of bad assets

i-banks like Lehman Brothers,

Merrill Lynch, Bear Stearns

ceased to exist

i-banks had taken positions in risky

assets like the CDS, MBO

Money started getting blocked in all the deals

for these banks had entered

Write Downs

Credit Crunch Begins

Tightening of Money

Leading to a Global Slowdown

The Global impact of the Sub Prime Crisis

Demand for goods

and services decreases

crisis that began in US has

spread across the globe

large number of financial and IT related institutions started laying off employees

consumer demand for goods and services have gone down due to an

increase in the unemployment

Due to this credit crunch, the secondary Sector including the manufacturing sectors are facing financial crunch

which is affecting expansion plans

Casualties of the Crisis

Impact on the Indian Outsourcing Industry

>> 30% of Indian

businesses are from

BFSI companies in

high-value financial

analysis, Insurance

underwriting, equity

research

>> 30% of Indian

businesses are from

BFSI companies in

high-value financial

analysis, Insurance

underwriting, equity

research

i-banks are converting

themselves to commercial banks,

implies no more lavish

IT and BPO budgets

for them to spend

i-banks are converting

themselves to commercial banks,

implies no more lavish

IT and BPO budgets

for them to spend

Indian IT and B

PO

companies to re

duce their

dependency on US &

look

into APAC, L

atin A

merica

& EMEA regionsIndian IT

and BPO

companies to re

duce their

dependency on US &

look

into APAC, L

atin A

merica

& EMEA regions

Tier II IT and BPO companies

in India considering merging

with larger IT and BPO

companies for their s

urvival

Tier II IT and BPO companies

in India considering merging

with larger IT and BPO

companies for their s

urvival

Western companies

started viewing India as a

strategic place to not only out

source higher-value research work, product design etc, but also to sell their own products and services

Indian outsource

companies are

setting up niche

vertical services to

capture the growing

KPO market

Indian outsource

companies are

setting up niche

vertical services to

capture the growing

KPO market

Current Scenario…

-Total financial losses of ~ 400 Bn USD -Banks accounting for at least 50% of losses

World has been reeling under a severe credit crunch

GDPs of emerging economies like India, China etc started moving southwards for the first time in the last 5 years

The same affected other industries like food, textile, retail & travel as well

Indian IT industry grow at rate of 15% as compared to 30-40%

growth all these years

US auto sales going down drastically due to lack of liquidity coupled with sliding demands

Govt reducing the interest ratesBailout plans for

financial institutions, automobile manufacturers

US dollar is seeing a fall against the major currencies of the world like Euro, Pound, Yen etc

Announcement of bail out packages by US & European Governments…

Future – Silver Lining??

We are at 5 right now......GOOD TIMES MAY RETURN AT 6