SBI rules out rate hike for 6 months

Interest rates on bank loans are unlikely to go up for the next six months at least. The banking system is flush with cash and a rate hike would only make it worse, says Mr O.P. Bhatt, the chairman of State Bank of India.

He was speaking at the press conference to announce the launch of the annual banking conference. The past few weeks have seen some apprehension of a rate hike by the Reserve Bank of India as inflation has increased. The State Bank group chairman said that he expected credit growth to pick up as the economy recovers, though it is too early to say when this would actually happen.

“Credit offtake is yet to gather speed,” Mr Bhatt said and hoped it would happen in the next six months. He said some banks are already reducing interest rates in order to boost offtake. In such circumstances, raising interest rates would not help.

Illustrating the slow growth in credit offtake, Mr Bhatt said that the gap between sanctions and dispersals of credit was Rs 50.000 crore. Asked how the banks inten-ded to handle the overhang of liquidity, Mr Bhatt said they were diversifying in order to deploy their funds in safe avenues that could give returns enough to cover costs.

Further they were trying to depress deposits and have already retired deposits of Rs 60,000 crore. They are bulk deposits of corporates and high net individuals and they are not being renewed when they mature. Simultaneously, the banks are growing their loans to small and medium enterprises and to home and vehicle buyers.

Mr Bhatt said that they are financing average home loans of Rs 15 lakh for self-occupied and family hom-es. He does not see risks involved nor high non-performing assets because of this.

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