During the flowery days, bankers favored a 3-6-3 format of working. This implies "borrow at 3%, lend at 6% and be at the golf course by 3 PM!" Those were however, good times when the stocks were rising, consumption was high fueled by the emerging economies by maintaining high surpluses and huge forex reserves and the economies growing at an astonishing rate.
But soon the flexibility of banks was forces into implementation. With rising inflation, interest rates rose. So the new format that emerged was 4-7-3! leading to 5-8-3, then 6-9-3, and so on and so forth.
This continued till the time was 9-12-3 (perfect combination of 3 multiples to send the global economies into a recession for a period of atleast 3 years).
Then came the default crisis!!! The economies began shrinking, liquidity of the financial institutions was questioned....Then the need to increase the money supply among public forced the government to pressurise the banks to reduce the interest rates.... Resulting in the reduced profits of the banks...
As of now the borrowing has been fixed at 9 to 10% and that is in the form of fixed deposits!!!
This phenomenon explains the apprehensions of banks in lending in current scenario. Lowering the interest rates to 8% will essentially mean only one thing for a banker, that is, 10-8-out. This means " Borrow at 10%, lend at 8% and then be fired by the bank heads for maintaining such scrupulous lending and borrowing procedures!"
*** lets hope that the economies start growing soon so that the banks regain confidence about lending and are able to contribute to the economy in a better way****
But soon the flexibility of banks was forces into implementation. With rising inflation, interest rates rose. So the new format that emerged was 4-7-3! leading to 5-8-3, then 6-9-3, and so on and so forth.
This continued till the time was 9-12-3 (perfect combination of 3 multiples to send the global economies into a recession for a period of atleast 3 years).
Then came the default crisis!!! The economies began shrinking, liquidity of the financial institutions was questioned....Then the need to increase the money supply among public forced the government to pressurise the banks to reduce the interest rates.... Resulting in the reduced profits of the banks...
As of now the borrowing has been fixed at 9 to 10% and that is in the form of fixed deposits!!!
This phenomenon explains the apprehensions of banks in lending in current scenario. Lowering the interest rates to 8% will essentially mean only one thing for a banker, that is, 10-8-out. This means " Borrow at 10%, lend at 8% and then be fired by the bank heads for maintaining such scrupulous lending and borrowing procedures!"
*** lets hope that the economies start growing soon so that the banks regain confidence about lending and are able to contribute to the economy in a better way****
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