State Bank of India may think twice about hiking its lending rates even if the Reserve Bank of India hikes benchmark interest rates further, according to Hemant Contractor, managing director of the country's largest lender.
"Till now we have passed on RBI's rate hikes, but we have to look at asset quality and things like that ... also, with credit growth slowing, the ability of banks to pass on any hike is a little limited," he told newspersons in Mumbai.
The bank has generally passed on the interest rate hikes dictated by the central bank's policies; but the ability of banks to pass on the hikes to borrowers is going down, he said at the launch of the bank's Vishwa Yatra Foreign Travel Card in Saudi rials.
In its continuous efforts to rein in galloping inflation, RBI has hiked the short-term repo rate at which it lends to banks 12 times in the last 18 months. The repo rate has moved up from 4.75 per cent in March 2010 to 8.25 per cent currently.
With food inflation surging to 10.6 per cent in the week ended 8 October (up from 9.32 per cent in the previous week) and the wholesale price index-based inflation remaining at a high 9.72 per cent in September, economists expect the RBI to up the repo rate by another 25 basis points or 0.25 per cent in the second quarter review of the monetary policy on 25 October.
But SBI has pegged its base rate at 10 per cent, which is among the lowest among banks. In fact, most banks have not raised rates after RBI last raised rates on 16 September.