far, low rates have not had a marked effect on bank profitability, with net income actually increasing between 2014 and 2015. but with interest rates expected to remain “ low for long ” in the euro area, market analysts expect a significant reduction in ( already low ) returns on equity over the next five years, especially for banks whose business models are strongly reliant on maturity transformation. the relatively subdued growth outlook is also expected to weigh on credit demand and hence income growth from loan volumes. structural challenges are a third factor in weak profitability. though the efficiency of the euro area banking sector has improved since the crisis, with median cost - to - income ratios declining by almost 10 percentage points, operating costs remain high in some national banking systems, especially those which are characterised by overcapacity. banks with high fixed costs are also facing increasing competitive pressures from non - banks and new fintech entrants. while there has been some industry consolidation in response, it has largely taken place within countries, meaning higher efficiency has come at the cost of increased national concentration. further rationalisation of branches and consolidation of entities appears necessary. but in a truly 1 / 8 bis central bankers'speeches integrated euro area banking sector, what i would ideally like to see – as a medium - term goal – is such consolidation to go hand - in - hand with greater geographical diversification. which is to say : banks achieving economies of scope and scale from cross - border mergers and acquisitions, while also deepening macroeconomic risk - sharing by diversifying country risks. this is, in my view, the litmus test of whether we have completed a genuine banking union. fourth are regulatory challenges. the increased resilience of the euro area banking sector is in large part down to the regulatory agenda since the crisis, but it is hard to deny that this agenda has also created some uncertainties, for instance over steady state capital levels, which are reflected in bank share prices. regulatory constraints have had a direct impact on earnings capacity too, especially in the investment banking space. revenue generation from fee, commission and trading income has fallen significantly as a percentage of assets since the crisis. this is a welcome and intended consequence of restrictions on excessive risk - taking, but comes at a time when interest income is also being compressed. the slump in bank profitability is not, per se, a concern for policymakers. the banking sector needs to adjust to a changing market environment just like any other economic sector. but – as i

deepak mohanty : investment and its financing – what causes private investment to remain relatively low in asia? welcome remarks by mr deepak mohanty, executive director of the reserve bank of india, at the asia - europe meeting ( asem ) conference on “ investment and its financing : what causes private investment to remain relatively low in asia? ”, mumbai, 16 december 2010. * * * 1. mr. peter bekx, director, european commission. mr. subir gokarn, deputy governor. mr. moreno bertoldi, head of unit, european commission. ms. valerie rouxellaxton, head of sector, european commission. distinguished representatives from the asem member countries. esteemed colleagues of central banks, representatives from multilateral organisations, think - tanks and academia, distinguished experts and friends. i am really privileged to have this pleasant opportunity of welcoming you all on the occasion of asem conference on behalf of the reserve bank of india and on my own behalf. i understand that this is the first asem conference of european commission in india. i thank the european commission for this opportunity. 2. i am indeed honoured to welcome you all to this lovely city of mumbai. as some of you may be aware, mumbai has a unique place in indian history and commerce. mumbai, built on seven islands, was the first british indian possession. mumbai came as a part of the royal dowry in 1661 to king charles ii of england on his marriage to the portuguese princess. it was later leased to the east india company for £10. today you can ’ t get even a square inch of land in mumbai for that price. today mumbai is one of most expensive cities in the world. mumbai is the business capital of india and handles major share of india ’ s commerce. it houses the headquarters of many major banks, financial institutions, insurance companies and stock exchanges. mumbai ’ s nature as the most eclectic and cosmopolitan indian city is symbolized in the presence of bollywood within the city, the centre of the globally - influential hindi film and tv industries. the city has valiantly faced many setbacks and kept up its vibrancy. that is what mumbai is! be that as it may, i am sure, you will get an opportunity during your stay to go around the city and experience for yourself the brisk life of mumbai. the marine drive which is just opposite this hotel is popularly known as queen ’ s necklace which you could see from the rooftop where we will have our dinner