They are giving long-term loans at rates that are significantly lower. Two years ago, the Reserve Bank of India (RBI) allowed banks to link all floating rate loans to an external benchmark lending rate instead of the marginal cost of funds based lending rate (MCLR). Ghosh had pointed out this discrepancy in a note in November 2020, where he said that loan rates are lower than equivalently rated bonds. With long-term loans allowed to float and deposit rates fixed, this could potentially lead to an asset-liability mismatch. Hence, banks would need to keep their cost of funds low by borrowing at a lower rate and keeping high CASA proportion," he added.

Source: Mint July 05, 2021 19:41 UTC