One of the dark clouds that have cast their shadow over the global equity markets is the crisis in what is called subprime mortgage lending. These are the loans that US banks gave to millions of risky customers at the height of the US real-estate party. This party has now wound down as the prices of real estate in the US have slipped. Many of the subprime borrowers now find that their loans are more than the price of the underlying house. Defaults have mounted. (Also see page 19.) Indian banks too have been on a housing-loan binge in recent years. The continued rise in real-estate prices has made this look like an easy game. One of the worries is that loans have been given out without adequate assessment of risk or proper documentation.
India is nowhere near a subprime loan crisis, but both banks and the regulator would do well to inculcate the chief lesson from the US subprime crisis—that mortgage lending is not as easy as it looks.