According to him, the problems were known and the recapitalisation efforts had started so to that extent the situation was under control. However, on the other hand, the bad news he said was that the bottom was yet to be found. Banks like HSBC (which said it would make a $4.6 billion provision for bad debts on Monday) too are saying that a recovery in the US housing market is unclear and a comeback, if any, can be expected only in 2009. A late 2009 recovery seems to be the consensus now.
Meanwhile, risk aversion is becoming higher all over. "Bank A will not lend to Bank B and that creates a liquidity problem as well," the banker said pointing to the Bear Stearns collapse, where the Federal Reserve had to step in to bail it out by providing emergency loans. After Bear Stearns, most banks globally were more wary, he said. How would all this impact India? According to him, what the sub-prime crisis had clearly done was to force all banks to carefully relook all their international operations. The relook, he predicted, would result in several banks recasting, downsizing or selling off pieces of their operations or investments. Actually, this has already begun to happen.
The problem, it turns out, will not just be with foreign banks with operations in India. Many bankers I have spoken to in recent days say the same recklessness in disbursing loans that partly triggered the mortgage market crisis in the US has been visible in India, though obviously not at the same scale.
For instance, there are several cases where individuals have used credit cards from some banks
