Create local YUM repository from iso

To Create a local yum repository a separate tool createrepo is required.
To install createrepo, mount the iso and type the following commands...

# mkdir -p /mnt/repo/{1,centoscd}
# mount  -o loop /path/to/centos.iso /mnt/repo/1
# rpm -ivh /mnt/repo/1/CentOS/createrepo*.rpm

Now copy the contents from iso to /mnt/repo/centoscd

# cp -rpf /mnt/repo/1/* /mnt/repo/centoscd/

Now create the repository

# cd /mnt/repo

# createrepo .

To clean existing repo cache enter

# yum clean all

Create config file
Add the following text in /etc/yum.repos.d/localiso.repo

[My-local-repository]
baseurl=file:///mnt/repo
enabled=1

Before installing packages GPG key needs to be imported

# rpm --import /mnt/repo/centoscd/RPM-GPG-KEY-CentOS*

Now use yum command to install packages

# yum install package-name