SBI likely to reduce lending rates

The country's largest lender, State Bank of India, may consider lowering lending rates for certain loan products in its next asset-liability committee meeting.

"The next asset-liability committee (ALCO) meeting might consider the current situation and take a call on interest rates," said O P Bhatt, chairman and managing director of SBI.

Bhatt was here to attend a meeting called by Finance Minister P Chidambaram to discuss how to increase the flow of credit to automobile and paper industries.

Bhatt indicated that the bank may consider lower lending rates for certain segments or launch some festival season schemes. The ALCO of the bank meets once in every week.

Bhatt said the bank may take a call on interest rates even before the Reserve Bank of India reviews monetary policy on October 30.

The bank is also in talks with the finance ministry on its plan to raise Rs 10,000 crore by selling new equity during November-January.

Irrespective of a slowdown in loan growth, the bank was exploring various options including a rights issue, a public offer and a preferential share sale, Bhatt said.

"We would like to raise Rs 10,000 crore. On current valuation, the government stake will be diluted by 2.5 to 3.0 per cent after the proposed share sale," Bhatt told reporters. The bank was not planning a stock split before the proposed issue.

The government now owns 59.73 per cent in the bank. Bhatt said the bank needed Rs 4,800 crore to meet the Basel II norms on capital adequacy by March 2008. He was hopeful of SBI meeting its target of 24-25 per cent annual growth in loans in 2007-08.

SBI share price closed at Rs 1,863.25 today, a decline of 1.95 per cent from the previous closing on the Bombay Stock Exchange.