The Effect of Inflation in the Indian Banking Sector

The liquidity crunch in the Indian banking sector made the loans expensive for retail borrowers as well as for corporate houses effecting the industrial production. Amid tight liquidity situation, almost all banks, public as well as private increased their lending rates during the second quarter to retain more liquidity with them. In order to attract more money from the market, banks raised their deposit rates, making deposits more attractive for the customers. The growth and inflation debate will continue for time being as it seems more a supply side problem rather than a demand side. The commodity price in world market is at its new peak and crude oil is heading north making it more troublesome for the policy makers to re-plan on inflation front. Meanwhile, liquid starved banking sector will have to bear the burden and with no option left pass that burden again on to the consumer