Hi, would just like to add that rate increases / decreases are part and parcel for a credit business and especially so for a long tenored asset book like a mortgage book - so this per se is not a concern. Imo, in a commoditised market like mortgages, market share is a more critical factor in terms of growth - it is preferable to sacrifice margins to grow, particularly if it allows one to access better customers as the cumulative life time risk reduction is significant, and the collateral itself will be superior. This is imo the main commercial risk. The key prudential risk for mortgages and long tenored asset books is liquidity - it really is not possible to match ALM to 20-30 yr assets beyond a point, so the question becomes the ability of the business to refinance periodically. This is unfortunately v opaque and difficult to make out - and requires deep and constant study of the money and bond markets. The global financial crisis was sparked by the confluence of the commercial and prudential risks in the US mortgage market - rates kept falling while customer quality kept worsening, and the constant need for liquidity led to layers and layers of opaque derivatives to adjust for the rising risk levels and falling return - eventually the underlying assets soured due to rising rates, triggering a wave of defaults, the super structure of derivatives imploded and liquidity froze completely. This was hard to see unless one delved into the structure of US money markets and the exact instruments being traded. In India, we don’t have such complex markets, but we have something equally opaque and incaculable - insider relationships and private information - Indian markets (debt markets) are concentrated and shallow, and moved easily by key market makers so any small signal (rightfully so) gets amplified many times - there’s a large information premium attached to discrepancy in Indian markets. I would guess there is more pain to come.
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