‘I will be surprised if RBI raises rates again’

The country’s largest commercial bank, State Bank of India (SBI) does not expect another round of interest rate hike by the Reserve Bank of India (RBI) when it announces its next round of policy initiatives at the end of July 2011.

“I will be totally surprised if RBI raises interest rates again. It has already raised the policy rates a number of times and now we (banks) need a break,” said SBI Chairman Pratip Chaudhuri in an interview with Deccan Herald. He was in town to launch SBI’s combo debit-cum-transit card for the Bangalore Metro. Since RBI has already raised repo rate (rate at which banks borrow money from RBI) and reverse-repo rate (rate at which RBI’s take money from the commercial banks) 10 times in the last 15 months, banks were forced to raise their lending rates steeply over the last one year. It has now reached a stage when there is a lot of resistance from the borrowers to take money at higher rates.  The SBI, in fact, has lowered its projections on credit growth rate for the financial year 2011-12 to 16-19 per cent from earlier 19-22 per cent. Asked about the credit growth in the first quarter (April-June 2011), Chaudhuri said that it is in line with the projection though the first quarter is generally a bit lean period. The impact of high rate of interest was already visible on corporate borrowing which remained stagnant for SBI in the first quarter. Credit pick up from the agricultural sector and for infrastructure projects, however, has picked up in the recent months. Though many banks have already raised their base lending rates, SBI will take a decision on the rate hike very soon, Chaudhuri said.  He is also of the view that the bank will be able to maintain its profitability in the first quarter though there is a slight decline in the net interest margins to slightly above 3 per cent against 3.15 in the first quarter, the previous year. The bank had surprised the market in May, this year when it announced a huge jump in provisions in the fourth quarter of the last financial leading to a 98 per cent drop in net profit. When asked if the cleansing operation is over, Chaudhuri said that, “There is still some pain left.” According to him the provisions for pension liability is still large and will have to be provided in chunks in the current year.  Asked if the banks should adhere to the regulator’s request to fund the microfinance institutions (MFI), Chaudhuri said, “MFIs are not banks’ liabilities. We will take our on call and provide them finance purely on merit basis.” He is of the view that if RBI does not allow MFIs to raise deposits from public fearing the credit risk, banks should not be pushed to lend them money.

Deccan Herald