The recent rise in interest rates and tighter liquidity in the bond market after the default by Infrastructure Lending & Financial Services (IL&FS) is likely to tilt the balance in favour of banks. A steady decline in 10-year government bond yields beginning the second half of 2014 led to a sharp decline in borrowings costs for non-bank lenders, improving their competitiveness against commercial banks that rely on low-cost deposits.
The average cost of borrowings (or cost of funds) for listed retail lenders declined from a high of 10.13 per cent in FY13 to a decade low of 8.21 per cent