The structural downtrend in Indian interest rates in the past 3 to 4 years could be one of the factors that encouraged the build-up of the maturity mismatches in bank balance sheets.

A key feature in the recent commer cial banking developments is the high growth in the consumer or retail credit segment. Concerned at the frenetic growth in retail credit, the Reserve Bank of India, in October 2004, increased the risk weights on such loans for capital adequacy purposes.

Six months hence, one is not sure whether the RBI's measure has had the desired effect in slowing down growth in this segment or not. To be sure, six months is too short a period for any central bank policy movebe it on interest rates or in the area of risk management to show up on the banking sector's balance sheets.

The focus is, therefore, on the slightly medium-term scenario only. And a study of the overall macroeconomic environment facing Indian commercial banks suggests that the focus on the retail/consumer credit segmentcomprising housing loans, personal loans, credit cards and other forms of personal financeis only going to strengthen as we go ahead. The retail loan portfolio is going to account for a much greater proportion of the overall asset portfolio than it does currently. And within the retail portfolio, it is quite likely that housing loans will dominate.

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