Third Day of IIMA Confluence 2008 Dedicated to Current Financial Crisis

Third Day of IIMA Confluence 2008 Dedicated to Current Financial Crisis

Mr. Ramchandran started his lecture by saying that current crisis was primarily caused by a credit crunch which was felt all across the world. Mr. Ramchandran opined, "There are four major reasons for the credit crunch. They are lax regulatory oversight, leverage, lack of

transparency and marked to market method of accounting." He commented that the contagion which had its roots in the sub-prime sector had spread to the entire credit market across the world.

Speaking about the steps being taken to fight the crisis, he stated, "...the move from monetary measures to fiscal measures to fight the crisis is unprecedented." He also felt that the current financial and regulatory frame work must be overhauled taking into consideration the needs and views of the people, government and the business. Commenting on the rapid appreciation of the dollar versus other c urrencies he said, "We are witnessing a flight to safety." Talking about the Indian economy, he commented, "India does not have a major trade exposure to the western countries vis-a-vis China and Korea which are heavily dependent on exports. India is better placed to weather the storm." He concluded the session by saying that we must take adequate precautions so that the expected $ 1-2 Trillion fiscal stimulus does not create a bubble.

In the post-lunch speaker series chaired by Prof. Siddharth Sinha, there were two well-known representatives from the Indian financial sector expressing their views on the current global crisis that the world is witnessing. First, Mr. Aluri Rao, Managing Director, Morgan Stanley Private Equity India, compared the current crisis with the other crises that the world has witnessed in the past ranging from the Great Depression of 1929 to the IT Bubble of Early 2000s. He remarked that the current crisis is different in nature as well as its impact. "...Current crisis has pretty much hit every asset class," he said. He termed the current crisis, 'a crisis of confidence'. However, Mr. Aluri pointed out that Asia today looks different from before and the recovery in Asia is going to be much faster that the western nations. He attributed this to the rise of China and India.

On the other hand, Ms. Shikha Sharma, Managing Director & CEO of ICICI Prudential Life Insurance Co. Ltd. looked into the factors that led to present credit crisis. She compared the financial crisis with the war of Mahabharata, as both witnessed bright minds leading the world into chaos by letting insatiable greed take reign of their games.

She averred that this is the time to sit back and introspect and align incentives to incorporate risk elements. Ms. Sharma pointed out that the current financial turmoil has brought back the importance of basic credit principles like repayment abilities. Commenting on the challenges faced by her in her career, Ms. Sharma considered her decision of taking a stand against copying the instruments floated by the competitors that could potentially harm the customers and the franchise to be the highlight of her career. She opined that every individual has the power and the choice to avoid the crisis. "Do what you believe is right and makes sense," said Ms. Sharma while summing up the lessons that one could learn.

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* Contributed by -
Ravi Shankar,
IIMA Confluence 2008,
Indian Institute of Management, Ahmedabad.

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