India's bank loans growing at 45%

he latest data shows India's bank loans growing at a whopping 45%. But, even steamier is the inflation number which has come in at nearly 6.5%. CNBC-TV18 checks out if the economy is moving closer to over heating.

The economy seems to be getting too hot to handle. Non food credit for the latest fortnight ended March 2 shot up by 45% over the same fortnight year ago. Last month this figure came in at 34%.

In fact, since December, credit has been growing at a rising pace. Debunking hopes that the steady rise in interest rates will slowdown the loan growth.

Indranil Sengupta, Chief Economist, Kotak Institutional Equities, says, “Primary articles inflation seems to be dragging on for more than expected, so the genesis of the higher inflation numbers is still essentially supply shorts rather than any kind of systemic overheating. There is an increase in electrical machinery prices that’s been worrying for some time and one has to see how that pans out.”

The RBI has long indicated its discomfort with the 30% loan growth and had said it wants the pace to come down to between 20 and 25%. It has hiked the repo rates 6 times in the past 18 months. And more lately, the cash reserve ratio in all by 150 bps, so as to suck out over 60,000 crores from the banking system.

Now with credit growth still coming in at 45%, is it likely to act very soon.

Sengupta adds, “We would expect the RBI to hike the reverse repo-rate in April. The reason being that the RBI has earlier hiked the repo-rate and in a market that is surplus you have to raise the floor rather than the ceiling and so we do expect the RBI to hike the reverse-repo rate.”

With US inflation also coming in higher than expected, the hope that global factors will cool rates is also fading. The question on the market's mind is not whether rates will be hiked but when.

Source Moneycontrol.com