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RBI rate hike may impact bank credit growth
May 12, 2022
Bank credit growth is likely to get affected in the near future as loans get costlier following the increase in the Reserve Bank of India’s key lending rate, analysts said.
Banks have started passing on the higher rates to borrowers, making home and auto loans costlier.
The RBI increased the repo rate by 40 basis points to 4.4 percent and the cash reserve ratio by 50 basis points to 4.5 percent in a surprise decision on May 4 amid inflationary pressure. One basis point is one-hundredth of a percentage point.
Bank credit growth had picked up in the recent past. Credit growth stood at 11.2 percent on April 8 as compared to 5.3 percent in April 2021. With interest rates going up, this momentum may get impacted, analysts said.
“Over the medium term, inflationary pressures, supply chain disruptions, and weak consumer demand could upset the current revival in credit growth,” analysts at India Ratings and Research said.
The higher interest cost will percolate to consumers in the form of more expensive mortgages, credit card, and other loans, according to Madan Sabnavis, chief economist of Bank of Baroda.
“The rate for a 30-year fixed-rate mortgage averaged 5.1 percent in the week ending April 28. That’s up sharply from under 3 percent in November,” Sabnavis added.
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