Also hikes rates on domestic-term deposits in two maturity buckets.
Faced with tight liquidity in the market, State Bank of India (SBI) has raised its base rate and the benchmark prime lending rate (BPLR) by 25 basis points each.
The country’s largest lender also increased interest rates on domestic term deposits by 25 basis points in two maturity buckets — 555 days and 1,000 days. Both slabs would attract rate of 9.25 per cent.
The new rates would be effective from February 14, 2011, SBI said in a statement. The revised base rate will be 8.25 per cent and BPLR, to which old loans are linked, will be 13.0 per cent.
“More than inflation, it is the tight liquidity condition which is influencing the bank to revise interest rates. If liquidity (crunch) continues to be the way it is now, another round of increase before the close of the financial year is not ruled out,” a senior SBI executive said.
Subdued government spending amid rising demand for funds is adding to pressure on banks. Also, there is an issue of monetary transmission (passing on of RBI’s policy rate hike). RBI wanted to rein in credit growth, which was possible by making lending costly, he added.
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The bank had raised BPLR by 25 basis points to 12.75 per cent from January 3. It had also raised base rate by 40 basis points to eight per cent and deposit rates by 50-100 basis points across various maturities.
The protection of net interest margin (NIM) when costs are going up is possible through raising rates on loans. Its NIM at the end of December 2010 was 3.40 per cent.
Meanwhile, its Managing Director R Sridharan said in Kolkata the bank was expecting 18-19 per cent growth in credit offtake by March-end. However, the deposit growth is likely to remain muted.
In its third monetary policy review, the Reserve Bank of India had expressed concerns over high incremental credit-deposit ratio, as credit growth was higher than deposit growth in many banks. “The broad money supply, or M3, is still less than RBI’s projection. At the same time, the gross domestic savings are estimated around 30 per cent,” said Sridharan.
The SBI manager director said there was a need to enhance the ceiling for infrastructure lending by banks, as many lenders had reached close to the limit. SBI has a limit of Rs 1 lakh crore for financing infrastructure projects.
“In long-term financing, often huge asset-liability mismatches can come up. Moreover, commercial banks have some limits to finance infrastructure projects,” he said. Retail bonds will also help the bank to mobilise long term deposits. “The largest concentration of deposits is between one and three years. To fuel 10-15 year projects, there is a huge asset liability mismatch,” he added.