Banks could find it tough to manage their asset-liability profile if they continue to lend aggressively to the infrastructure sector, rating agency Icra said in a report. Deregulation of savings rate, which might compel banks to pay higher rates on low-cost deposits, will also take a toll on the asset-liability balance of banks, the report said.
"Increase in proportion of infrastructure loans and deregulation of savings rates could worsen the ALM (asset liability mismatch) profile and increase interest rate sensitivity of banks," Icra said in its report. Banks' exposure to the infrastructure sector stood at 14% of total loan book as of March 2011, while share of savings account to total deposits was about 22%.
Banks could find it difficult holding on to their retail customers if the savings rate is deregulated that will give customers the choice of availing the best possible rate. Savings account and current account rates are the only two deposit rates regulated by the central bank. An internal committee of the Reserve Bank of
Until the recent increase to 4% from 3.5%, the savings rate had remained unchanged since March 2003. Average loans to the power sector have increased to 56% of net worth as of March 2011 from 33% as of March 2006. "Around 30-40% of total power sector exposures are estimated to be funding cash losses of state utilities. Unless reforms gain pace, these could be potential problem accounts," the report said.
Other concern areas for banking include large government borrowing and low deposit mobilisation that could limit credit growth, the report said. About 40% of banks' funds are parked in government bonds and if deposit grows 17% it would give room for 17-18% credit growth, Icra said.
State Bank of
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