Asset-liability mismatch looms on banking sector: Pronab Sen

India’s banking sector is faced with the predicament of a “massive asset-liability mismatch” that could explode anytime, renowned economist Pronab Sen said, adding that there is a need to reassess laws governing the industry.

Sen said “that explosion” has not yet happened as most of the banks are in the public sector.

Explaining the situation, he said the Indian banks had adopted the British model, and the laws don’t allow lenders to borrow from the capital market, which essentially makes deposits the only source of funds.

“The average tenure of bank lending is about nine years, and deposits’ tenure is close to two-and-a-half years. So, you have nine years on the asset side, and 2.5 years on the liability side… which means there is a massive asset-liability mismatch which can explode anytime,” the former chairman of the statistical commission said.