Effect of the Subprime Crisis on Commercial Bank of India's Performance

Banking is an important part of any modern economy, as it is essential for

stimulating economic growth, channelizing financial flows, assisting the

payment system, and implementing monetary policy effectively. Banks are

the most important financial intermediaries in the financial system of an

economy, and are as important to the economy as heart is to a human

body. Banks mobilise savings by accepting deposits from the people,

create credit by lending money to their customers and to other banks,

provide loans to businessmen, purchase government securities, and

provide merchant banking services to businessmen. Banks also provide

customers with safe deposit vaults and provide security to their valued

possessions. Banks have become a 'one stop shop' and provide customers

with various investment opportunities under the same roof, viz.capital

markets, government securities, insurance, etc. In view of Friedman and

Schwartz (1963), banking panics caused contractions in the money supply

which caused slowdown in economic activities and eventually results in a

financial crisis. In another school of thought, banking panics are not a

financial crisis but a pseudo-financial crisis