Interest rates may be cut soon, says SBI chief Bhatt

30 May 2009

The State Bank of India will consider a cut in interest rates after finance minister Pranab Mukherjee meets the chiefs of all public sector banks early next month, according to the bank's chairman O P Bhatt.

"As far as interest rates are concerned, we will take a view after bankers' meeting with finance minister," Bhatt said after the launch of Defence Salary Package on Friday. Bhatt said that there is enough liquidity in the banking system as the deposits are witnessing a strong growth, but the credit offtake has not picked up as yet.

Because of excess liquidity, he said there is definitely a softening bias on interest rates. There is no chance of the interest rate going up in the near future, he added. However, he felt that high costs of deposits are forcing banks to avoid cutting the prime lending rates. Because of the old fixed deposits taken by banks at high rates till December 2008, the overall cost of funds have not come down substantially, despite cut in the deposit rates recently, Bhatt said.

Falling inflation and sufficient liquidity present a strong case for a rate cut. ''How much it will fall and to what extent would depend on the products mix and balance between asset and liability,'' Bhatt said.

SBI last reduced the benchmark lending rate by 75 basis points to 12.75 per cent beginning this year. At the same time, the bank is offering home loans at a rate of 8 per cent.

Meanwhile, SBI launched a special product called defence salary package for Army personnel, and aims to open about 12 lakh accounts under the scheme. The bank is ready with stationery and application form for opening such huge number of accounts, Bhatt said.