Amidst the asset quality and poor credit off-take woes, here comes another trouble for Indian banks. In one set of news, foreign banks will now be allowed to lend in Indian rupees. The central bank has allowed non-resident foreign banks to offer debt to local companies in Indian rupees. This is expected to happen through swap arrangement with Indian banks. However, this will call for fresh competition for Indian lenders from the foreign counterparts. Primarily because foreign banks are not bound by the reserve requirements of cash reserve ratio (CRR) and Statutory Liquidity Requirement (SLR). This would make it easier for them to lend at cheaper rates. Moreover, the fact that foreign banks can set up representative offices in India for lending purposes also is a big encouragement for them to set up base in India. While the Indian banking sector dynamics are undergoing a sea change, underlying challenges persists for the domestic players.
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