SBI rules out lending rate hike in the next six months

30 Dec 2009

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Putting to rest the widespread speculation that a tightening of bank rates is imminent in view of the inflationary pressures, State Bank of India chairman O P Bhatt said on Tuesday that there will be no hike in lending rates in the next six months, as there is surplus liquidity in the market.

The head of India's largest bank told reporters in Jamshedpur that there is a good amount of liquidity in the market, as credit offtake is only picking up slowly. Thus while the banks have cut rates on deposits, the surplus liquidity would prevent them from correspondingly raising lending rates.

Bhatt claimed that the 8 per cent interest rate scheme on home loans pioneered by SBI had helped revive the realty market, as it also forced other banks to follow suit. He said the cement and steel sectors had also started improving and borrowers had started coming back.

Referring to the ongoing amalgamation process of SBI with its associate banks, Bhatt said SBI is a major stakeholder in its associate banks like the State Bank of Saurashtra, which it recently merged into itself, and the State Bank of Indore, for which it has started the merger process. The move has sparked protests by a section of employees.

"In fact, we did not have less than 75 per cent stake in any of these banks and owned 100 per cent in State Bank of Hyderabad and State Bank of Patiala, which were with us for the last 50 to 60 years," he said.

The merger would improve SBI in terms of efficiency in operation, release of capital, economies of scale and avoiding waste and duplication. "More importantly, we are getting good quality people," he said.

He added that the merger process should not be viewed in terms of benefit, as it is a process of restructuring within a family.

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