SBI: Lending rate may not change before June
State Bank of India (SBI) chairman OP Bhatt has said that its margins will minimize by 20-25 basis points after the bank shifts to calculating interest on savings accounts on daily balances from April 1.
SBI Personal Loan, SBI Home Loan and SBI Credit Card is the main products for People.
Reserve Bank of India has asked banks to change the present system of crediting interest rates on savings accounts. At present banks calculate interest based on minimum monthly balance held between the 10th to last day of each month. From April 1 all banks will calculate interest daily based on that day’s balance.
Chairman of SBI said that although margins will take a hit in the short term, they will recover in the medium term as yields on advances will rise. SBI’s net interest maintains (difference between the cots of funds and yield on advances) rise from 2.30% in June 2009 to 2.82% in December 2009.
“The impact will be 60 to 65 basis on the saving deposit book, which is a third of our total deposits. So the overall impact will be 20-25 bps on NIM,” said Bhatt. “Though, this cost can be absorbed because the average yield on advances will rise once the base rate comes into effect,” he added. At the same time he said that the bank has the option to raise the lending rate to protect its margin. But this might happen in the month of May or June when liquidity runs out of system, he said.
Mr Bhatt said that the bank’s new base rate is likely to be in the range of 8-9%. From April 1, banks have to replace prime lending rate (PLR) with a base rate and no bank will be allowed to lend below the base rate. SBI’s PLR presently stands at 11.75%. He was speaking at the sidelines of a function organised by of Indian Institute of Banking & Finance.
However, he hinted that fourth quarter may be tough for SBI given the rising yield in the bond market. Due to the rise in yields we could see some market to market losses. He also said that SBI may seek exemption from the base rate for priority sector loan and staff loan.
“SBI has huge employee base to whom we lend at cheaper rate and thus we have asked for exemption from base rate,” he said. “Base rate makes sense but there are some implementation issues like priority sector lending and staff loans, all these are gray area right now for which we need to apply our mind and find solutions.”
Meanwhile, he said that SBI is confident of meeting 18% credit growth target because there will be a spurt in credit pickup in March. So the banking industries too see 16% growth as projected by RBI. He also said that the banks is looking at hiring 15,000 to 20,000 new talent next fiscal and it has already hired 25,000 people this year.
SBI Personal Loan, SBI Home Loan and SBI Credit Card is the main products for People.
Reserve Bank of India has asked banks to change the present system of crediting interest rates on savings accounts. At present banks calculate interest based on minimum monthly balance held between the 10th to last day of each month. From April 1 all banks will calculate interest daily based on that day’s balance.
Chairman of SBI said that although margins will take a hit in the short term, they will recover in the medium term as yields on advances will rise. SBI’s net interest maintains (difference between the cots of funds and yield on advances) rise from 2.30% in June 2009 to 2.82% in December 2009.
“The impact will be 60 to 65 basis on the saving deposit book, which is a third of our total deposits. So the overall impact will be 20-25 bps on NIM,” said Bhatt. “Though, this cost can be absorbed because the average yield on advances will rise once the base rate comes into effect,” he added. At the same time he said that the bank has the option to raise the lending rate to protect its margin. But this might happen in the month of May or June when liquidity runs out of system, he said.
Mr Bhatt said that the bank’s new base rate is likely to be in the range of 8-9%. From April 1, banks have to replace prime lending rate (PLR) with a base rate and no bank will be allowed to lend below the base rate. SBI’s PLR presently stands at 11.75%. He was speaking at the sidelines of a function organised by of Indian Institute of Banking & Finance.
However, he hinted that fourth quarter may be tough for SBI given the rising yield in the bond market. Due to the rise in yields we could see some market to market losses. He also said that SBI may seek exemption from the base rate for priority sector loan and staff loan.
“SBI has huge employee base to whom we lend at cheaper rate and thus we have asked for exemption from base rate,” he said. “Base rate makes sense but there are some implementation issues like priority sector lending and staff loans, all these are gray area right now for which we need to apply our mind and find solutions.”
Meanwhile, he said that SBI is confident of meeting 18% credit growth target because there will be a spurt in credit pickup in March. So the banking industries too see 16% growth as projected by RBI. He also said that the banks is looking at hiring 15,000 to 20,000 new talent next fiscal and it has already hired 25,000 people this year.
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