4. Securitization of Mortgages Credit Rating Agencies Mortgage Backed Securities / Credit Debt Obligations Big Investors Sold To Ratings CDOs MBS Swaps Ratings Credit Default Swaps
5. More Loans and More Securitization Securitization Increasing Interest Rates and Increasing EMIs Increasing Interest Rates Leading To Increasing EMIs
6. Mortgage Defaults and Foreclosures Mortgage Defaults Foreclosures Claims on CDS pile up Mortgage Defaults
7. How did the Mortgage Default begin? MindTree Ltd Dream home for everyone! --Home loans without proper background verification of borrowers --At Floating Rates Mid 2006 inflation increases Fed increases the interest rates, leading to increase in the interest on home loans Banks were left with no option but to start writing off the loans Majority of the borrowers start defaulting Piling of Mortgage Defaults
8. A falling Real Estate Regime and Write Downs Falling Home Prices Investors 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
11. 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
13. Impact on the Indian Outsourcing Industry >> 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 Indian IT and BPO companies to reduce their dependency on US & look into APAC, Latin America & EMEA regions Tier II IT and BPO companies in India considering merging with larger IT and BPO companies for their survival 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
14. 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 rates Bailout plans for financial institutions, automobile manufacturers US dollar is seeing a fall against the major currencies of the world like Euro, Pound, Yen etc
