"With the growth cycles in the rest of the world gathering momentum, there is perhaps little reason to believe that India would like to pursue an easy monetary policy," ICRA said in its January 2005 report on trends in the banking sector.
As a matter of fact, rates for housing loans have already been increased along with deposit rates, the credit rating agency said.
The expected upward movement in interest rates is likely to reduce trading profits for scheduled commercial banks as well as cause an upward pressure on both deposits and lending rates, it said.
Continued reduction in trading profits could exert a downward pressure on profits in the short to medium term.
Additionally, even though the sustained strength in industrial and services sector indicates continued support to GDP growth in 2004-05, the positive agricultural growth since the last fiscal year may not be sustained further due to the impact of lower than average monsoon this year, it said.
The industrial growth is also likely to be affected even though it is currently running close to 8 per cent due to a fall in demand as a result of declining farm growth and rising interest rates.
"Any possible slowdown in industrial growth may also affect the quality of loans for the banking sector as such," ICRA said.