Lending rates not to increase till May says O.P. Bhatt

By News Desk | February 20, 2010

State Bank chairman OP Bhatt said that lending rates are unlikely to increase at least in the next 3-4 months since any rate increase in a low-demand situation can harm banks’ margins.

He told the media that hike in lending rates may not occur till May-June till the excess liquidity is not removed from the system. He also hinted that SBI will not hike the interest rates on its deposits in the immediate future.

After RBI’s recent decision to hike CRR, HDFC Bank and IDBI Bank had increased their deposit rates. Other banks may also follow the suit shortly.

SBI has excess liquidity of about Rs 75,000 crore and its maintenance expense had severely damaged the 3rd quarter figures of the bank.

About base rates, he said that banks have sent a joint feedback to RBI, in which they have quoted some implantation problems, especially in the priority sector and staff loan divisions. He said SBI has not yet calculated its base rate and the banks might also ask RBI to extend the deadline to execute the new system, as there are problems in switchover.

He said that the new system of computation of interest rate on savings account can have an impact of 0.2-0.25% of the portfolios of bank’s deposits. This statement was in light of the recent RBI directive to pay more to savings account holders with effect from 1st April.

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