Retail lending in India increases by over 30 per cent

US Sub-prime mortgage crisis began in late 2006, when thousand of borrowers defaulted in payments, as a result, many lenders had to file for bankruptcy, leading to a direct impact on US housing market and the economy as a whole.

Some economists, including former Federal Reserve Board Chairman, Alan Greenspan, have expressed concerns that the “subprime mortgage crisis will impact the housing industry and even the entire U.S. economy. In such a scenario, anticipated defaults on subprime mortgages and tighter lending standards could combine to drive down home values, making homeowners feel less wealthy and thus contributing to a gradual decline in spending that weakens the economy.”

Last year, 13.5 per cent of mortgages originated in the U.S. were sub-prime, according to the Mortgage Bankers Association, compared to 2.6 per cent in the year 2000. Overall, the sub-prime market was $600 billion in 2006, 20 per cent of the $3 trillion mortgage market, according to Inside Mortgage Finance. In the year 2001, sub-prime loans made up just 5.6 per cent of mortgage dollars. By the end of 2006, sub-prime delinquencies more than 60 days late were almost 13 per cent, compared to 8 per cent a year earlier.

With failures of high profile US financial firms working in the sub-prime mortgage market, credit risk premium on the US corporate bond market have also risen sharply. Global investors are willing to take a lower risk for getting the same returns today and are now demanding a higher premium in return for bearing any kind of risk, including that of stocks of emerging market economies like India. Hence, we are witnessing lower prices for shares, corporate bonds, and real estate in Indian Markets.

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(Extracted from Assocham Press Release)

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