State Bank of India's base rate is likely to go up in the current (October-December) quarter in view of the increasing cost of deposits.
Though many banks have revised their base rates as well as BPLRs upwards by 25-50 basis points after the Reserve Bank of India hiked key short-term interest rates in September, SBI has held its base rate steady at 7.5 per cent.
The SBI Chairman, Mr O.P. Bhatt, said in the second quarter the cost of deposits was at the lowest level in the last 12 months.
But it started inching up towards the end of the quarter. Bulk deposit rates too have gone up.
Pointing out that there is a huge amount of pressure on liquidity, the SBI Chief said “It (liquidity) not just getting tighter, but liquidity has become more volatile in the system. Therefore, call rates, short term rates, rates on commercial paper and certificates of deposits too have gone up.” “I think the interest rates will go up on the lending side,” he added.
About 60 per cent of SBI's loan book (by value) is now linked to the base rate, said Mr S. Ranjan, Chief Financial Officer, SBI.
The bank's benchmark prime lending rate is 12.25, which it has raised in August . On credit growth, Mr Bhatt said the banking system is unlikely to reach the RBI projected growth of 20 per cent in FY2011. It may be around 18-19 per cent.
Rights issue
About SBI's proposed rights issue, Mr Bhatt said he is hopeful that the government, which holds 59.41 per cent stake in the bank, will give its green signal before the end of the calendar year. The bank plans to raise Rs 20,000 crore through the rights route by the end of the fiscal year.
“The Government of India has been subscribing to the capital of various public sector banks including those which are adequately capitalised...the capital requirement (from the Government's side) for SBI would definitely be a bit high,” Mr Bhatt said.
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