“A back-of-envelope estimate suggests that the core funding cost of the banking system which includes cost of deposits, negative carry on SLR and CRR, and return on assets, currently stands at 6%, while the reverse repo rate is 3.35%.”
Additionally, if we add the cost of provisions to the original financing cost, the total cost comes to about 12%. Clearly, banks are facing significant margin pressure,” the research report said.
In addition, market analysts say that risk The premium in excess of the core funding cost is not appropriately acknowledging the underlying credit risk. For example, a 15-year loan is being priced at less than 6% by linking it to repo/T-bill rates. Also the 10-year government bond is currently trading at 6.2% and with the current pricing trends it may again move towards 6.0%. “This discrepancy not only negates the concept of” tenor premium But over the long term, such rates may pose a significant risk to the stability on which borrowers and banks are basing their financial calculations.”
Economists at the country’s largest lender believe that now is the opportune time to rethink taxation of interest on bank deposits or at least increase the exemption limit for senior citizens. “NS reserve Bank of India We may also reconsider the regulation that does not allow bank interest rates to be set according to age-wise demographics. Additionally, while there is no restriction on benchmarking of loans (as against earlier MCLR) by RBI and banks are free to use any benchmark published by FBIL, the ongoing restriction on not allowing negative spread on MCLR is also subject to The repo noted. This will help the banks to be agile, better manage and book quality business without presenting the entire book to external benchmarks.”