With almost every bank having increased lending rates by at least 50 basis points and the State Bank of India leading the pack with a hefty 75 basis points hike in its base and benchmark prime lending rates, bankers believe there could be some slowdown in credit growth this year.
The Reserve Bank of India (RBI), which upped key policy rates by 50 basis points at its meeting in early May, has projected a non-food credit growth of 19% for 2011-12 with the growth in deposits projected at 17%.
In the fortnight to April 22, 2011, non-food credit grew at 22% year-on-year while in 2009-10, non-food credit had grown 21.5%.
While they believe that the economy continues to do well, bankers say there could be some hesitation on the part of borrowers both in the retail and corporate segments.
?The latest round of rate hikes could have some dampening effect on borrowings especially in the home loans space because we have seen that higher interest rates on home loans do tend to pinch borrowers,? says SK Chakrabarti, deputy managing director, Axis Bank.
Charabarti explains that although credit off take was expected to pick up after the lean season sometime in June, higher rates may keep some borrowers away.
?The growth in our retail credit book could be in the range of 20-25% in the current year slightly lower than the 30% increase seen in 2010-11,? he says.
Stuart Davis, CEO India, HSBC, says, ?Credit growth isn?t as strong as what we would have expected this stage of the cycle. We think it?s a combination of higher interest rates that is slowing down some of the investment decisions for some of our larger clients with big projects. There has been a delay in getting some regulatory approvals, which is also slowing down some of the investments.?
Davis adds that while there is good growth in the retail segment, ?high interest rates are starting to cause perhaps a little bit of dampening of enthusiasm?.
Says MD Mallya, CMD of Bank of Baroda, ?It?s difficult to predict how credit growth will pan out this year, but a 20% growth for the sector should not be difficult to achieve.?
Mallya, however, adds that there might be some hesitation on the part of companies to take investment decisions immediately.?
Retail demand is more or less inelastic, so there will be a marginal effect only,? Mallya adds.