SBI defers decision on hiking rates

While what resulted in the asset-liability committee (ALCO), which met today, defering a decision is unclear, the bank's chairman O P Bhatt said in Hyderabad, "We can afford to wait for a week.''

In the evening, he told a news agency that SBI can absorb the 25 basis point increase in repo rate.

On Thursday, Bhatt had told reporters that SBI may raise the prime lending rate (PLR) or alternatively look at increasing interest rate on certain loans.

"We will wait and watch and take a little time. We want to examine whether we can absorb the repo rate hike. I think we can afford to wait for a week or two. We will deliberate, get the data and then we will look at our strategies," Bhatt said on the sidelines of a seminar.

"The ALCO discussed a range of issues, including the money market situation and interest rates, but decided to defer a decision," a SBI executive said.

Even Union Bank of India which had earlier said that its asset-liability committee will review interest rates next week is expected to meet later. Sources attributed the delay to the fact that the bank's Chairman & Managing Director being out of Mumbai.

While banks under the finance ministry's ambit may have deferred a decision on raising rates, Jammu & Kashmir Bank was the first to move, hiking its prime lending rate by 100 basis points to 14 per cent.

A public sector bank chief said that banks will wait for a few more days before effecting any interest rate changes. "The increase in repo rates is an indication that interest rates are going up but each bank will have to decide on the basis of its cost of funds. A repo rate will affect banks that have a large repo content more," he said.

The yield on the 10-year government bonds shot up to 8.38 per cent in the money market. The yield hardened on the back inflation rising to a seven-year high of 8.75  per cent at the end of May 2008.