Lending rates may fall before RBI's rate cut, says SBI

State Bank of India (SBI), the country’s largest lender, said interest rates may ease before the central bank reduces the policy rates, as higher rates have started hurting the industry.

“Rates are high and obviously it is hurting the industry. We are all hoping for that (lending rates to fall). In the long term, one of the things that will make industry viable and investment come back is to have lower lending rates,” Diwakar Gupta, managing director and chief financial officer of SBI, said on Wednesday.

When asked whether there was a possibility of rates being lowered before policy rate cut by RBI, he said, “Could be”. It will depend on the resources and how deposits flow into the bank, he added. At present, SBI’s base rate or the benchmark lending rate is at 10 per cent.

The Reserve Bank of India (RBI) raised interest rates 13 times between March, 2010 and October 2011, while pausing thereafter in the two policy meetings. In the last meetings, it reduced the cash reserve ratio — the proportion of deposits banks have to keep with RBI as cash — by 50 basis points to 5.5 per cent, signalling a policy shift towards reviving growth after nearly two years of fighting inflation. The central bank also said for interest rates to fall, inflation needs to ease. Economists expect RBI to cut rates from the April policy, if not from the next review meeting scheduled middle of next month.

Headline inflation eased to two and a half year low at 7.47 per cent in December after hovering around the double-digit mark for 20 months. RBI expects wholesale price index-based inflation to fall to six per cent by March-end.

Commenting on capital infusion in the bank by the government, Gupta said SBI’s capital adequacy ratio is likely to rise to more than eight per cent after the fund infusion. On Monday, SBI said the government would infuse close to Rs 8,000 crore via preferential allotment of shares by the bank.

Following the fund infusion, the government’s stake in the bank, which is at 59.4 per cent now, will also increase.

SBI will need to raise Rs 15,000–16,000 crore in the next financial year to meet the capital requirement. However, Gupta said the bank was adequately capitalised to meet Basel-III norms.