India is apparently facing its own subprime crisis. Banks have cut back on lending, as the Bank of India has caused real interest rates to rise to around 7%. Loan growth is already down 20% this year, with personal unsecured loans facing the greatest cutbacks.
ICICI, India’s largest bank, has withdrawn entirely from this sector, which was formerly growing at 40% a year. V Vaidyanathan, executive director at ICICI, said ‘we have tightened credit norms across all elements of the credit portfolio. Though the existing book is performing well, its better to be conservative’.
As a result, India’s GDP is now expected to be around 8 – 9% this year. Earlier optimistic expectations of 10% growth now look unrealistic.