Many firms have delayed or abandoned new projects following the high cost of credit. Since March 2010, the Reserve Bank of India has hiked its key repo and reverse repo rates ten times to control the stubborn inflation.
With inflation still hovering near the double digits at 9.06 percent in May 2011, the banking regulator is getting ready for another round of rate hike in the coming months to bring down the inflation to comfortable levels, even as the country's output has slowed down a bit due to the rate hikes. Most analysts expect a 50 basis points hike in the coming months.
India's largest lender, the State Bank of India has hiked its base rate by 50 bps to 9.50percent.ICICI Bank, Corporation Bank, ING Vaiysa Bank and Canara Bank have all hiked their lending rates recently.
Auto loans are set to be impacted by the double blow of rising cost of credit and high fuel prices. This could make consumers defer their vehicle purchases to a later period.
The total bank credit rose by 21.5 percent in 2010-11 and the credit growth for 2011-12 was estimated to be 19 percent by the RBI at its annual monetary policy announcement in May this year. Between April and June 17, bank advances rose by 49,817 crore to Rs 39, 24,193 crore against Rs 61,148 crore in the same period last year.
India's international bank ,Bank of Baroda ,is set to achieve its target of 23-24 percent growth in advances in 2011-2 .The bank has seen a steady growth in its home loan portfolio at 22 percent.