Interest rates to inch up soon, says SBI chief Bhatt

State Bank of India Chairman O P Bhatt said on Monday that interest rates were likely to go up in the next six months once the busy season sets in, and the hike might be between 25-100 basis points (0.25-1 per cent). He added that the interest rate would largely depend on the liquidity in the market as well as fiscal management.

His statement seems to contradict finance minister Pranab Mukherjee, who asserted on Sunday that the government would ensure that the rates do not go up through proper fiscal management. However, most experts agree that the government's massive borrowing plans would suck liquidity from the market and push up interest rates.

Bhatt told journalists at a FICCI conference in Kolkata that a minor increase in interest rate would not affect corporations in a big way. He exhorted industry chiefs not to weaken the Indian banking system by asking for lower interest rates.

"As per the data available, the interest cost is just 8 per cent-9 per cent of the total cost of the top 1,000 listed companies. So, an increase in rates by even 100 basis points will not affect the corporate sector significantly. Only, there will be a little pressure on the bottom line."

He said that currently there was huge liquidity in the banking system, but the loan uptake was very low. "Banks have parked over Rs1 lakh crore with the Reserve Bank of India because we have no other option. The credit growth is slow. Even in the home loan segment the credit growth is lacklustre. Even after offering as low as 8 per cent interest we are not getting enough home loan customers," he added.

According to him, SBI alone is losing Rs100 crore every month because of low credit uptake. Bhatt said the net interest margin of SBI has come down to 2.32 from 3.16 in last few financial quarters. "We need a minimum level of NIM to survive," he said, adding that a NIM of 3 would be comfortable.

Bhatt said economic revival would be slow as all sectors were not responding in the same manner. ''It does depend on the global recovery.''