The rise in policy rates by Reserve Bank of India has put banks in the race of moving both deposit and lending rates upwards. This upward bias has initiated undesired competition amongst banks. It is feared that this competition will hurt the margins as well as profits of banks.

Banks have already started wooing customers by revising the fixed deposit rates. Commercial Papers are soon going to see a revision. It has been reported that some banks are urging RBI to allow sub base rate lending, but the banking regulator is unlikely to accept such requests.

The NPA level of banks is not showing an appreciable view. All banks have been directed by RBI to achieve a 70% provision coverage ratio on NPAs by September.

Banks also need to be very cautious about their capital adequacy ratio (CAR). They need to keep a check on their credit rating as well.