Low liquidity, loan growth to push rates: Bhatt

Our cost of funds stable, says SBI chairman

Loan growth and tight liquidity could lead to higher interest rates in the coming days, State Bank of India (SBI)Chairman O P Bhatt said here on Monday .

“Interest rates have a slightly upward bias... (due to) tight liquidity combined with some more credit offtake which is going to take place. So, these two together may push up interest rates,” Bhatt said on the sidelines of the India Economic Summit organised by the World Economic Forum.

Asked about the current liquidity conditions, he said the situation was comfortable. Liquidity has come under pressure owing to the mega public issue of Coal India Ltd a few weeks ago, besides a surge in spending during the festival season.

On the upcoming euro bond issue by the bank, Bhatt said, “We are planning for the bond. We would like to go for roadshows sometime next week.” The nature of the issue was such that the details could not be divulged, he said.

Asked if the size would be ¤500 million, he said, “It could be.”

“We are expecting to raise a benchmark-size five-year euro bond as we’ve a significant pipeline of existing customers who require euros,” Bhatt had said last week.

On cost of funds for India’s largest bank, Bhatt said it had been stable during the past one month. “Our cost of funds has been stable during the last one month and has come down over a period,” Bhatt said.

The cost of funds of many banks has come under pressure owing to an increase in deposit rates following a series of tightening measures during the year.

The Reserve Bank of India raised interest rates for the sixth time this year to tame rising inflation earlier this month, increasing the key short-term lending and borrowing rates by 25 basis points each.

Accordingly, the short-term lending rate (repo rate) stands at 6.25 per cent and the borrowing rate (reverse repo) at 5.25 per cent.

RBI, however, left the cash reserve ratio, which is the amount of cash banks have to park with the central bank, unchanged at six per cent.