SBI rules out interest rate cut in near-term

On the day the RBI kept interest rates unchanged, calling on commercial banks to relay onward benefits of earlier rate cuts, government-run State Bank of India (SBI) on Tuesday ruled out any interest rate cuts soon for its borrowers.

The SBI chairperson, Arundhati Bhattacharya, told reporters here that she does not see any room for a cut in the near future. "Any rate cut by the bank would depend on many factors, including credit growth."

The RBI kept its key repo rate, at which it lends money for short-term to commercial banks, unchanged at 7.25 percent on Tuesday, sticking to its stand that further cuts will depend on commercial banks passing on the previous reductions to borrowers.

"Since the first rate cut in January, the median base lending rates of banks has fallen by around 30 basis points, a fraction of the 75 basis points in rate cut so far," Reserve Bank of India (RBI) Governor Raghuram Rajan said in the central bank's monetary policy update at the Mint Street headquarters here.

"As loan demand picks up in Q3 (July-September) of 2015-16, banks will see more gains from cutting rates to secure new lending, and more transmission will take place," he said, adding liquidity would not be a cause for worry since the government had decided to infuse more capital into state-run banks.

In her defense, Bhattacharya said the SBI had raised the rates by 30 basis points

when the RBI had earlier hiked the policy rate by 75 basis points, and the reduction in the bank's rate has, equally, been 30 basis points when the central bank had cut the policy rate by 75 basis points this year.

Commenting on the policy review, the Confederation of Indian Industry said with credit demand being weak, and while corporates and banks are grappling with a large number of stressed assets, a cut in interest rates would have helped to restore the investment cycle.

"CII expects that the RBI would resume monetary easing in its next monetary policy when there would hopefully be much more clarity about the inflation trajectory, the

normalcy of monsoons and the possible (US) Federal Reserve actions," the industry chamber said in a statement here.