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Rising interest rates and slowdown in the economy could affect the asset quality of banks, according to Mr Anand Sinha, Deputy Governor, Reserve Bank of India.
However, he emphasised that deterioration in the quality of assets will not become systemic.
Rising interest rates have started affecting consumer demand. Investment demand from corporates is also subdued, said Mr Sinha in his address at the FICCI-IBA Banking Conclave here on Wednesday.
The interest rate sensitive retail sector will feel the pressure on asset quality as high rates have started hurting consumer demand.
“I would not say we are particularly worried about the retail loan segment, but yes, this segment is the one that is likely to feel the pressure,” said Mr Sinha.
Lending rates of banks have shot up by around 275 basis points in the last one year, impacting credit demand.
Banks were forced to up lending rates as the RBI tightened policy rates 11 times, beginning March 2010, to tame inflation.
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