MUMBAI: India Ratings today gave a "stable" outlook for the country's banking sector, but said lenders may face funding issues which will make passing on of lowerinterest rates untenable.
The funding issues will arise from the asset liability mismatches, wherein banks are carrying low tenor deposits and lending for longer duration, and due to migration to the Basel-III regulations, which require $ 45 billion by FY'18, India Ratings Senior Director Ananda Bhoumik said here today.
Bhoumik said the banks face a "conundrum", wherein they will not be in a position to lower interest rates even if the RBI eases its policy rates.A cut in deposit rates, which is a precursor to softening of the high lending rates, coupled with inflation staying elevated, will result in a further reduction in real interest rates and hurt the deposit rates, he said.
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