This could result in significant mark to market losses for fixed income instruments with potentially adverse implications for banks’ profitability. This again could impair financial stability. In India too, we are confronting the dilemma of managing the tension between fiscal and monetary policies. The government has asked the Finance Commission to indicate a road map for returning to a path of fiscal consolidation.
Another concern for community banks is the narrowing of the range of their profitable lending activities: Because larger banks have used their scale to gain a pricing advantage in volumedriven businesses such as consumer lending, community banks have tended to specialize in other areas, such as loans secured by commercial real estate.