Accounting for these factors, we do not see strong evidence that bank profitability, on aggregate, has been suffering from our measures at this stage. However, the longer the current low-interest rate environment persists, the greater the challenges for bank profitability will be.
It is a matter of great comfort that there has not been any sovereign market borrowing in a currency other than rupee. The foreign currency borrowing is mostly by the corporate sector. The inclination to resort to foreign currency borrowing is seductive. Usually, debt is cheaper than equity. Secondly, it is tempting to borrow in a low-interest rate currency and leave the liability un-hedged.