An eye for the short term

.....One argument, no doubt, against lowering the minimum tenure of FDs or permitting banks to offer interest on current accounts is that it would aggravate a growing asset-liability mismatch confronting the industry. As it is, well over two-thirds of bank deposits are of below two years, making it difficult to fund longer tenure assets such as home loans. Rather than encouraging banks to do more to mobilise FDs with tenors of five years or more, and also raising resources through long-term bonds, Chaudhuri’s suggestion would imply doing just the reverse. But this is a wrong inference. No sensible banker, after all, will extend a 15-year home loan based on funds borrowed for three days........

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