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The former chairman of the statistical commission Pronab Sen has said that India's banking sector is faced with the predicament of a 'massive asset-liability mismatch' that could explode anytime. Sen stated that there is a need to reassess laws governing the industry. Sen said that explosion has not yet happened as most of the banks are in the public sector.

Explaining the situation, he said the Indian banks had adopted the British model, and the laws don't allow lenders to borrow from the capital market, which essentially makes deposits the only source of funds. He mentioned ‘Today, the average tenure of bank lending is about nine years, and deposits' tenure is close to two-and-a-half years. So, you have nine years on the asset side, and 2.5 years on the liability side... which means there is a massive asset-liability mismatch which can explode anytime.

He said ‘It hasn't happened because the largest chunk of our banks are in the public sector... But, now banks have to assess not only the risk of the borrower, but also the length of time of lending... There is an enormous risk for the banking sector’. He said 20 years back, the loan portfolio of banks comprised 70-per cent working capital finance and 20-per cent retail, while term loans to companies accounted for 10 per cent of the share. Moreover, He said, in present times, term lending for fixed capital is 45 per cent of the loan portfolio, and working capital finance has shrunk to around 35 per cent.