By Ashwini Anand The Indian banking sector is in deep trouble. No, I am not referring to the 25%-50% crashes the stock prices of lenders such as DHFL,IIFL or Edelweiss or the huge liquidity crunch that threatens the operations of several lenders, forcing RBI to raise the single-borrower lending cap for NBFCs by 50% (from 10% of assets to 15%). These are, but, temporary blips in the larger scheme of things. Short term blips & tick-by-tick movements are nothing to worry about Finance professionals use the term “Asset-Liability-Mismatch (ALM)” for this kind a problem resulting from the divergence between the tenure of a lender’s borrowings and the maturity of its loan assets. During credit-booms, this is less of a problem as liquidity needs can easily be met through short-term borrowings such as commercial papers. However, when market conditions are not favourable, liquidity is either unavailable or too expensive, thus leading to financial instability. As the panic ensuing from the IL&FS default settles down, as the USD-INR exchange rate stabilizes and lenders learn all over again (as they do every few years) that borrowing short-term (via Commercial Papers for example) and lending long-term (3 years -20 years) is not a smart… Read full this story
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With system-wide NPAs worse than Pakistan & Botswana, the Indian banking sector is in a mess have 248 words, post on economictimes.indiatimes.com at October 23, 2018. This is cached page on Bach Thien. If you want remove this page, please contact us.