SBI sees no interest rate hike in 6 months

SBI sees no interest rate hike in 6 months

Mumbai: The chairman of India’s largest commercial bank said on Friday demand for loans was rising slowly and interest rates were unlikely to rise over the next six months.

“Demand is picking up, though slowly," OP Bhatt at the State Bank of India told reporters at a news conference ahead of a banking conclave organized by the government-run bank from Monday.

He said the bank’s loan growth could reach 18% in the current year to March but customer demand was still sluggish.

“I do not see interest rates going up in the next 4-6 months," he said. “The industry still has a lot of liquidity and there are lesser avenues to get returns."

Bhatt said the gap between loan sanctions and disbursements was Rs50,000 crore ($11 billion), or 8% of total loan portfolio of the bank, but demand was picking up.

“We will definitely cross 16% as per our estimate. It is also possible to touch 18%," he said, referring to loan growth in 2009-10.

State Bank, which along with its associates controls almost a quarter of Indian bank loans and deposits, expects to maintain interest margins in the December quarter, Bhatt said though treasury gains were wearing off.

Its net interest margin grew 2.55% in the September quarter from 2.3% in April-June.

Bad debts provisioning for State Bank, which has 12,000 branches across India and abroad, may rise in the December quarter because of a change in norms, Bhatt said.

Analysts say State Bank and ICICI Bank would be among the worst hit by the Reserve Bank of India (RBI) decision in October to raise the minimum provision ratio for bad debts to 70% from 10% by September 2010.

State Bank’s capital adequacy ratio, a measure of its financial efficiency, stood at 14% and there was no immediate capital raising requirement, Bhatt said.

Bhatt said the bank had not renewed high-cost bulk deposits of Rs60,000 crore ($13.1 billion) in 2009-10, mainly held by large companies, but there was still liquidity overhang.

He also said he does not expect an increase in banks’ cash reserve ratio (CRR) at the central bank’s monetary policy review on 29 January.

CRR is the level of deposits banks are mandated to park with the central bank. It now stands at 5%.