Bankers foresee a substantial recovery from the economic slowdown in 2010 and feel that this could lead to a pick up in credit growth thereby resulting in higher interest rate regime.

Rising inflation could soon compel RBI to hike Cash Reserve Ratio (CRR) and policy rates. RBI has started exiting its accommodative monetary policy by restoring SLR in October.

With excessive liquidity in the system, a hike in CRR is evident. CRR is the percentage of amount banks should keep with RBI. The hike will help in sucking out excessive liquidity in the system.

The year 2009 was quite good for banks and it showed the resilience of the system to a huge crisis.
"As we move ahead, when we shun the impact of slowdown, I expect the bank credit growth to revive considerably, which may result in upward movement of lending rates as well," said MD Mallya, chairman and managing director, Bank of Baroda.

Bank credit that grew around 10 percent, did not see much appreciation due to corporates opting for non-banking sources in order to avail cheap finance.

According to bankers, the regulator is expected to increase the policy rates by at least 50 basis points by April and a 0.5 percent hike in CRR could happen as early as January.

Oriental Bank of Commerce CMD TY Prabhu supported the view and said that the industry was slated for a healthy revival in business in the next year and corporate demand was expected to increase in the next quarter.

"We can see corporates coming back with their project proposals as the economic activities picking up. The pick up is already happening. This would only go better in the months ahead and I'm quite optimistic about the new year," he said.