RBI chief flags banks' margin stress; lenders see little respite

Banks are like piggy banks that borrow money from people and lend it out to others.

The difference between what they earn from lending and what they pay for deposits is called their margin.

India's central bank governor said these margins have gotten smaller over the past year.

The margin for the whole banking system fell to 3.21%, down from 3.26% a year before.

Banks are paying a lot for deposits, while many people and companies want loans, so there is tough competition for money.

Some banks, like Axis Bank, think the squeeze has hit its lowest point and things will get better.

Others, like Macquarie analysts, think the next few months will be even harder.

Special foreign-currency deposits called FCNR are also making margins a little smaller.

Banks have raised the interest they pay on these deposits to as much as 6.25% to attract customers.

The central bank kept its main interest rate steady at 5.25%.