RBI warns banks of assets and liabilities’ mismatch
August 3rd, 2008 | by admin |Rating: 7
Expressing concern over the tendency of some banks to lend too much compared to their sources of funds, the Reserve Bank on Tuesday warned that it may start supervisory review of these banks.
揝ome banks have expanded credit rapidly in relation to the system level growth, with attendant worsening of their credit-deposit ratios…If necessary, RBI would consider undertaking supervisory review of those select banks which are overextended in terms of their credit portfolios relative to their source of funds,?the RBI said in its quarterly review of monetary policy.
The central bank said mismatches between credit-deposit ratio by some banks warrant heightened policy concerns in the interest of overall systemic stability and the quality of financial intermediation.
The central bank urged the banks to review their business strategies so that they are in a position to combine longer term viable financing with profitability in operations, recognising the reality of business cycles and counter cyclical monetary policy responses.
Banks should focus on stricter credit appraisals on a sectoral basis, monitor loan to value ratios and generally ensure the health of credit portfolios on a durable basis without encountering undue asset-liability mismatches.
Indian Banks Association Chairman T S Narayanswami said the RBI抯 caution to banks came as too much credit expansion would nullify the effect of RBI抯 tighter monetary stance of RBI.
揌igh credit off-take will lead to excess liquidity in the system, defying the RBI agenda of inflation control,?he said.
