Upward bias in interest rates expected: Bhatt

Has already raised 25 bps on loans that are coming up for revision.

State Bank of India (SBI), the country’s largest lender, on Wednesday said there was an upward bias in interest rates in the wake of tight liquidity conditions.

The bank has already effected an increase of at least 25 basis points on loans that are coming up for revision.

“Liquidity is tight. Already there is an upward bias (in interest rates),” Bhatt said, adding the interest rate movement would depend on demand and the Reserve Bank of India’s (RBI’s) monetary stance.

Over the last fortnight, liquidity has tightened in the money market following withdrawal of funds by telecom companies to pay for the third-generation (3G) mobile phone spectrum.

Banks have borrowed over Rs 60,000 crore over the last two days through RBI’s repo window. The situation could tighten in the coming weeks as another Rs 30,000 crore is estimated to go out of the system for advance tax payments. Companies that are in the race to get broadband wireless access spectrum will need to pay at least Rs 32,000 crore.

Besides, cost of deposits for banks has gone up in recent months due to overall monetary tightening.

Bhatt told reporters on the sidelines of a conference organised by the Confederation of Indian Industries that liquidity in the system was expected to remain tight this month. But, it could ease next month, he said. Tight liquidity conditions have forced SBI to borrow during RBI’s liquidity adjustment facility operations.

The SBI chairman said the public sector lender was planning to mop up Rs 20,000 crore through a rights issue by the end of the current financial year. While the bank has been contemplating an issue for several months, clarity will emerge after a decision is taken by the government, which holds 59.4 per cent in the bank.

“It is still at the conversation stage (with the government). That is why, if at all it comes up, may be it will be coming up towards the end of this fiscal,” Bhatt said. The bank is also expected to announce its base rate by June 15. It was likely to set the base rate at 7.5 per cent to 8.5 per cent, Bhatt said.