....The regulators have also decimated the profitability of various pieces of the financial services industry over the last few years and thus shrunk the profit pool for financial services. First we had Sebi go after the mutual funds and insurance sectors, destroying the manufacturer margins as well as severely denting the economics of third-party distribution. Then gold loans and microfinance came into the regulators’ cross-hairs, and their business models will have to be re-jigged. The whole capital markets piece is bleeding, with no signs of profitability — and the RBI has significantly tightened priority-sector norms, making these targets much harder to achieve without self-origination of assets. Thankfully the RBI seems to have pulled back on the new non-banking financial corporations’ priority sector and securitisation guidelines, or even that sector may have undergone a profit shock.......
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