Are margins too high in Indian banking?

The RBI seems to think so; one RBI official was even quoted as saying that Indian banks' margins are 'usurious'. It's hard to draw conclusions from the aggregate level of NIM because a bank's NIM is a function of a number of factors; for the same reason, comparing with other countries may not be useful.

The regulator must simply ensure that there is adequate competition- and live with the margin that results. There is a case for tolerating higher NIMs given that banks' capital requirements are poised to rise due to Basel 3 and stiffer regulation in the years to come. That will put banks' return on equity under pressure and make it a little difficult for Indian banks to finance their huge requirements of capital from abroad.

More in my ET column, RBI mustn't dicate bank margins.