NSEL crisis – Mini Version of US subprime crisis in Indian capital markets

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The US subprime crisis in 2007 had shaken the foundation of US economy and eventually the global economy. Subprime loans (loans for people with not so good credit history, jobs, assets etc.) had high probability of default. These loans were structured by investment banks into Bonds and sold to various Financial Institutions around the world. The mortgage (subprime loan) issuers had the incentive to issue as many mortgages as possible. The practice became so unprofessional, that the loan applicants were asked to fill the form in pencil so that issuers could misrepresent certain details so as to meet the issuer’s lending criteria and get the loans issued. The package of such loans was not managed well from risk perspective, not […]