Average banking spread has fallen to nine-year low, rendering the long-term government papers more attractive, as it would help banks earn more.
“Average banking spread is at nine-year low, whereas spread in October 2014 touched 5.81 per cent to average at 6pc during 10 months of 2014,” said a report of JS Research issued on Tuesday.
Low banking spread means banks would earn less money as interest on advances, thus creating more space for high yielding government bonds.
Bankers said the spread was falling because policy interest rate has come down while lending rates have gone up.
“In this scenario, banks will continue to invest in long-term government papers, like PIBs. Banks made record investment in PIBs during 2014,” said a senior banker.
