Despite of banks reducing interest rates, there are expectations that the industry would still not enjoy increased amount of retail lending. Retail lending comprise of home loans, personal loans, auto loans and loans for consumer durables.

The segment has faced a slowdown in 2008-09 mainly due to the rising interest rates and global financial turmoil that also had a severe impact over it. The high asset prices remained another cause for reducing the demand in the segment.

Personal loans were given at rates over 17% and it was difficult for the banks to disburse loans with high risk of default. Presently personal loans are offered at around 15.5% per annum but the industry experts feel that this is not enough for a revival of demand in the segment.

Even the largest lender, State Bank of India (SBI) does not expect any rise in its loan demand despite of cutting the interest rate twice in the past two months. The bank does not expect its retail loan portfolio to grow more than 10% to12% for the current fiscal.

An official from SBI said that though the interest rates are declining, the revival of demand is unlikely because in this time of slowdown people are more focused towards their basic needs rather than taking a loan to fulfill the other requirements. "People are bothered about roti and kapda, and other demand will follow only when these first two are fulfilled. Right now, people are worried about getting pink slips, so even if one has Rs 1 lakh in the bank account, he will prefer to save," said the official.

Meanwhile the bankers say that interest rates are not the only reason for the loan demand. They claim that affordability is another important aspect that is coming on the way of consumers' demand for a loan. For instance if the property prices do not decline then a fall in home loan rates is less likely to have an impact on the home loan demand.

However to support the sector, public sector banks have been asked by the government to advance home loans up to Rs 5 lakh at 8.5% and those in the range of Rs 5 to Rs 20 lakh at 9.25%. Even the processing and prepayment fees have been waived off from such loans. The government aims to extend as much as Rs 15,000 to Rs 20,000 crore as home loans till June 2009.