Higher interest rates have started to impact the growth rates of bank's loan portfolios, and that is not just on account of the interest rates. Bankers are predicting a rise in delinquency levels, especially in the unsecured personal loans and credit card segment as borrowers find it an uphill task to repay their dues.

Given the consequent fear of default, evident from certain geographies, has prompted banks to ease up in disbursing unsecured credit.

In what could well be an industry trend, most banks are expecting a rise in their bad debt provisions, and a rise in default rates, and plan to keep interest rates on loans up to Rs30 lakh unchanged.

Banks are now looking at restructuring their loans by evaluating increases in the loan tenure to avoid defaults. The Reserve Bank of India (RBI) had increased the repo rate and the cash reserve ratio (CRR) in recent times, leaving banks no option but to increase lending rates by 25-100 basis points, or 0.25 to 1 per cent. The bank intends to control credit growth at around 20 per cent, around 6 per cent down fro the existing rates. 

Speaking to the media, ABN Amro Bank's country head Meera Sanyal acknowledged a rise in the number of personal loan defaulters for the bank's Indian operations, saying that it was part of the credit cycle, and the ''whole banking sector has to deal with this.''

Bankers are saying that there is a slowdown in the offtake of credit in small-ticket loans across the industry, and consequently banks are slowing down growth of their credit cards portfolios. In a number of cities, credit card holders hold multiple credit cards, increasing risk for banks. 

Credit rating agency Crisil too had predicted a rise in delinquencies in the retail portfolio of banks recently with rising interest rates. It predicted that the asset quality of retail loans would deteriorate, as bad loans and non-performing assets in the retail segment would increase to four per cent of the total loans over the coming next two years.
 
Unsecured credit formed 17 per cent of the total outstanding retail loans as of March 2007, up from 6 per cent in 2004, according to Crisil.