SBI not to hike interest rates immediately: OP Bhatt | business | Hindustan Times
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SBI not to hike interest rates immediately: OP Bhatt

A day after the Reserve Bank raised its short terms lending and borrowing rates, the country's largest lender SBI today said that it is not likely to hike its interest rates before 3-6 months.

business Updated: Sep 17, 2010 21:44 IST

A day after the Reserve Bank raised its short terms lending and borrowing rates, the country's largest lender SBI on Friday said that it is not likely to hike its interest rates before 3-6 months.

"I am not seeing the possibility of any immediate change in interest rates," SBI Chairman O P Bhatt told reporters here.

He, however, said the possibility of interest rates hike is there in 3-6 months if economic conditions change.

Without specifying for the SBI, Bhatt said base rate, which is the floor for lending rates, may rise by 25 basis points in case economic conditions change.

Consequently, lending rates may also increase as they are directly linked to base rates that can be changed by banks only once in three months.

RBI had yesterday raised short term lending (repo) rate by 25 basis points to 6 per cent and borrowing (reverse repo) rate by 50 basis points to five per cent to tackle rising inflation.

Rising inflation has also made interest rates, adjusted to rise in prices, negative. This has encouraged depositors to look for others means for parking money.

"One important consequence of negative real rates is that banks have seen a deceleration of deposit growth, as savers look for higher returns elsewhere.

"If bank credit is not to become a constraint to growth, real rates need to move in the direction of encouraging bank deposits," RBI said in its mid quarterly review yesterday.

In case deposit rates are raised, lending rates will have to be increased by banks to retain their margin.

Other public sector lenders, including Bank of Baroda, had yesterday said they will take a call on hiking interest rates next month.

On its plans for rights issue to raise Rs 20,000 crore, Bhatt said, "we are talking to the government in this regard. Hope that our proposal (rights issue) will get government nod this fiscal."

He also said despite monsoon conditions in Orissa, Jharkhand and West Bengal among others, SBI business is expected to grow by 20 per cent this fiscal.