State Bank of India (SBI), the country’s largest lender, today said interest rates were headed upwards and it would soon decide on revising its deposit rates and the benchmark prime lending rate (BPLR).
The good news is that the new borrowers will be spared from an increase as the base rate is unlikely to be changed for the moment. SBI Chairman O P Bhatt told reporters the bank can only revise its base rate once a quarter. A senior executive said given the global uncertainty and India’s industrial growth falling to 7.1 per cent, the bank will wait for a few weeks before it decided on revising the rates for new loans.
An increase in BPLR will help the bank shift borrowers to the base rate, which is the new benchmark for lending rates.
“There is an upward bias on interest rates... We are looking at that... Now that our quarterly results are out, we shall review our interest rates,” Bhatt told reporters here.
Asked about the likely rise in rates, he said: “It has to be a minimum 25 basis points.”
Given that the bank’s deposit base grew by 6.78 per cent to Rs 8.15 lakh crore at the end of June, compared with Rs 7.63 lakh crore a year ago, SBI will look to raise more resources. The only comforting factor is that the lender still has surplus cash of around Rs 20,000 crore, though loans in the pipeline are to the tune of Rs 50,000 crore.
Preference to rights issue
SBI today said it had approached the government for permission to raise Rs 20,000 crore by way of a rights issue and strengthen its capital base.
Bhatt told reporters he would prefer this route of fund raising though Parliament had cleared a Bill, to reduce government holding from 59.41 per cent to 51 per cent.
The chairman said a follow-on public offer and issue of preference shares were the other options.
The bank’s capital adequacy ratio declined to 13.54 per cent at the end of June. Though it is above the 12 per cent comfort level, the bank needs capital to fund its expansion. SBI is targeting 21-22 per cent loan growth during the current financial year.
A proposal for a rights issue has been pending with the finance ministry for over a year.
