Interest rates to remain stable in near future: Bhatt

Country's largest lender State Bank of India (SBI) today said interest rates are likely to remain stable as liquidity is surplus but there is a need to lower deposit rates to contain the cost of funds.

His comments come days before the Reserve Bank India's (RBI) quarterly review policy. It is widely anticipated that the apex bank will increase key rates and cash reserve ratio (CRR), giving signals to banks to increase lending rates.

When asked about possibility of interest rates going up, SBI Chairman O P Bhatt said it will remain stable.

Speaking to reporters on the sidelines of a function here, he also said, credit growth is likely to be 20 per cent in the next fiscal. "This year, it (credit growth) may close at 18 per cent. Credit growth is picking up...Credit growth in the next fiscal (FY11) may be around 20 per cent."

Referring to the banks' demand to lower the savings bank deposit rates, he said rates savings account deposits should be lowered to contain the cost of funds.

When asked about RBI's displeasure at banks parking huge amount of funds in the financial instruments of mutual fund companies, Bhatt said banks were investing in mutual funds largely as credit demand was muted.

"There were not many avenues (to park money). Liquidity is surplus. But now they (banks) have started reducing their MF exposure (as demand is picking up)."

The call for lowering deposit rates comes as banks fear their cost of funds will go up when they start computing the savings deposits rates on a daily post-April, 2010, as directed by the Reserve Bank of India.