The crisis of the mismatch between loans and deposits before the banking sector

Kolkata: The country’s banking sector faces an asset-liability mismatch problem that is likely to explode at any moment, said senior economist and former chairman of the Statistics Commission Pranab Sen. He said there was also a need to review the laws governing this sector.

Since we have most banks in the public sector, the embarrassment of the mismatch between assets and liabilities has not yet arisen. But Sen warned that it could cause a big crisis in the future. As Indian banks follow the British model, banks cannot raise funds directly from the capital market. As a result, banks have to depend on deposits as their main source of funding. For this reason, it is necessary to reform the banking law and open the doors of the capital market for the financing of banks like Japan and European countries in the world.

Commenting on the current situation, Sen said, the average term of loans disbursed by banks is about nine years. Compared to this, the duration of the deposits is two and a half years. This means that, from the bank’s point of view, the assets have nine years and only two and a half years to meet the liabilities. As the period gap is significant, a crisis situation can arise at any time. This forces banks to assess not only the risk of the borrower, but also the duration of the loan.


Pranab Sen warned against caution in bank privatization policies. He expressed concern that control of deposits and funding across the banking sector would revert to the private sector without government support and in unlimited form.