FinMin to take a view on Khandelwal panel report soon: Jt Secy
Published on December 5, 2010
Soon after ICICI Bank decided to raise deposit and lending rates by up to 50 basis points, the country’s largest lender State Bank of India (SBI) said it too could raise deposit rates in the similar range.
The announcements came a day after RBI Governor D Subbarao asked banks to hike deposit rates and lower lending rates, with a view to raising the level of national savings, as well as to encourage investments needed for double-digit growth.
“Deposit rates could go up by 50 basis points or more,” SBI Chairman O P Bhatt told reporters on the sidelines of the annual Bancon in Mumbai on Saturday.
On when would the rate hike be announced, he said, “next week”.
Stating that there has been a slight uptick in demand for credit, Bhatt said, “If credit growth picks up, more deposits can be attracted into the banking system by better pricing which is beginning to happen…In the current situation, they (deposit rates) can only go up. ”
With credit demand picking up and liquidity crunch yet to ease, ICICI Bank has decided to raise interest rates on fixed deposits of various tenors by 0.25-0.50 percent.
However, contrary to RBI’s suggestion that banks should lower lending rates, ICICI has decided to increase benchmark prime-lending rate and its Floating Reference Rate (FRR) for consumer loans (including home loans) by 50 basis points.
The new rates would be effective from 6th December, ICICI Bank said in a statement.
Meanwhile, Bhatt exuded confidence that the bank will be able to achieve a credit growth of 19 percent in the current fiscal, as both retail and investment demands are picking up.
Liquidity crunch, something which the Reserve Bank has flagged as a concern, is already forcing lenders to jostle for a greater share of funds by increasing deposit rates.
Prospects of a very large amount getting drained out of the system due to the third quarter advance tax payments this month are only expected to compound the problem.
The liquidity situation will ease up by the last quarter of the fiscal as the Government spending will increase then, Prime Minister’s Economic Advisor C Rangarajan said.
He added that generally public spending increases in the last quarter of the fiscal.
On lending rates, Bhatt said SBI will take a call only next month as it has already increased newly introduced benchmark lending rate — base rate, below which banks can’t lend — once this quarter.
A call on the rates under the old BPLR (benchmark prime lending rate) will also be taken next quarter, he indicated.