InvestorQ : What is the maturity mismatch concern expressed by economist Pronab Sen?
sara Kunju made post

What is the maturity mismatch concern expressed by economist Pronab Sen?

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Mary Joseph answered.
2 months ago
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Economist Pronab Sen highlighted maturity mismatch risk for banks in a recent speech. Here are the key points covered by Sen.

a) Sen has that Indian banks may be running a huge risk of maturity mismatch or asset liability mismatch, due to borrowing at the short end of the yield curve and lending at the long end of the yield curve. Banks may face a refinancing problem.

b) Sen has pointed out that the maturity profile of deposits is 2-3 years while the average maturity profile of loans given is 7 years. That can be risky in a rising interest rate scenario.

c) Twenty years back, 70% of the loans of Indian banks went for funding working capital, especially small and medium enterprises (SME). That is down to just 35%. Instead they are lending to longer tenure projects, infrastructure and home loan mortgages.

d) PSU banks may be safe, but private banks are more at risk, so privatization must be calibrated by the government.

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