Capital norms: A problem
Annual return on equity for Indian banks has constantly declined over the past few years. While the figure was at 16% in financial year 2007-08, it is now expected to touch 14% in FY’14. Similarly, RoA for Indian banks, which was close to 1.2% in FY’08, has now come down nominally over the past few years. Prime reasons for this is the increase in mandatory capital levels. This has left the banks with comparatively lesser money to lend.
Banks may turn back at customers
While most banks have decided to pass on the benefit of the interest rate cuts to their customers in the past, this may not happen again. This time, the banks may focus on preserving net interest margin (NIM) by maintaining their base lending rates. This simply means that even if the RBI reduces policy rates, the benefits may not reach the end customers the way it should have.
Annual return on equity for Indian banks has constantly declined over the past few years. While the figure was at 16% in financial year 2007-08, it is now expected to touch 14% in FY’14. Similarly, RoA for Indian banks, which was close to 1.2% in FY’08, has now come down nominally over the past few years. Prime reasons for this is the increase in mandatory capital levels. This has left the banks with comparatively lesser money to lend.
Banks may turn back at customers
While most banks have decided to pass on the benefit of the interest rate cuts to their customers in the past, this may not happen again. This time, the banks may focus on preserving net interest margin (NIM) by maintaining their base lending rates. This simply means that even if the RBI reduces policy rates, the benefits may not reach the end customers the way it should have.
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