No rate hike for six months: SBI

No rate hike for six months: SBI
The Times of India, December 30, 2009, Page 21

Surplus Liquidity, Low Credit Offtake Will Force Banks Not To Up Interest

TIMES NEWS NETWORK

New Delhi: India Inc can rejoice. State Bank of India chairman OP Bhatt on Tuesday indicated that there will be no increase in interest rates for next six months despite inflationary pressure.

As inflation is rising, the speculation is rife that RBI might take measures to tighten the money supply, leading to hardening of interest rates, in its review of monetary policy in January. As the global economy is still in the grip of recession, industry captains feel that any hike in interest rates will affect the economic recovery in India.

Bhatt said there was surplus liquidity in the system and credit offtake was slowly picking up. This situation of liquidity surplus will force banks not to increase interest rates. Because of this surplus liquidity, banks have cut deposits rates. But they are not cutting the lending rates due to slow credit offtake, despite the speculation that RBI can increase key rates (repo or reverse repo) to contain inflation.

In the eight months of the current financial year till December 4, while the deposits with the commercial banks rose by 3,69,535 crore, credit offtake was only Rs 1,44,151 crore. This forced the banks to park around Rs 100,000 crore with the RBI at reverse repo rate of 3.25%.

When the interest rate condition was benign, SBI had cut its lending rates, particularly home loan rate. Bhatt claimed that the 8% interest rate on home loan announced by SBI had helped reviving real estate market. The buyers have started coming back and cement and steel sectors have also started improving, he said. In fact, SBI’s decision to cut the rates forced other banks to follow suit, he added.

Bhatt does not think Indian economy had been affected by global recession. ‘‘The recession did not hit India the way it had affected European countries last year. There was only a slowdown in the growth rate which came down to 7% from 9%,” he said.

Replying to a question on withdrawal of stimulus package by the government in the prevailing situation, Bhatt said it should not be taken back but ‘phased out’ in staggered manner.

Referring to the ongoing merger process of SBI associate banks, Bhatt said SBI is a major stakeholder in SBI associate banks like State Bank of Saurashtra and State Bank of Indore. “In fact, we did not have less than 75% stake in any of these banks and owned 100% in State Bank of Hyderabad and State Bank of Patiala which were with us for the last 50 to 60 years,” he said.

State Bank of Saurashtra has merged while process was on in regard to State Bank of Indore, Bhatt said. The merger would improve SBI in terms of efficiency in operation, release of capital.

RBI hints at tighter money supply

Bangalore: Concerned over the spiralling food prices, the Reserve Bank has indicated at tightening money supply to contain the rising inflation pressures.

“Effective assessment of the inflation process, and using monetary policy actions at the right time would be critical to enhance the effectiveness of the inflation management policy,” RBI deputy governor Shyamala Gopinath said. She further said there is a risk of high inflation in essential commodities affecting inflation expectations over time and give rise to generalised inflation. “Given the dominance of food price inflation in shaping the overall course of the inflation path, the policy challenge is to address the supply constraints,” Gopinath added.

The food inflation was nearly 19% last week while the overall wholesale price inflation rose to 4.78% in November compared to 1.34% in October. PTI