Excuse me for posting this article in this section, but I think it's worth discussing about. I'm not good with the jargon of words they have used in that article, is it that the CB has put a limit on how much loans banks could give out? (Thereby limiting the main income of banks)
I'm also baffled about one conflicting argument made in that article, at one point it says:
"The Central Bank in its latest monetary policy review for February 2012 had decided to direct commercial banks to moderate their credit disbursements so that the overall credit growth in 2012 will not exceed 18 per cent of their respective loan book outstanding at the end of 2011..."
So, this means banks would be able to grow their loans up to maximum of 18% of their current (2011) loans. But then the article says:
“It will definitely affect the profitability of the sector for this year. But, a level playing field may be created because each bank irrespective of their size would have to moderate their lending to this specified limit”
How can there be a "level playing field"? Bigger banks have bigger loan books, so their 18% growth will be much higher than small banks having smaller loan books.
I think I have misunderstood something very basic. Does "credit disbursements" refer to something other than giving away loans? I tried to find some definitions but did not get a clear picture.
It would be great if someone can enlighten us!