Limited room for rate cut, says SBI chief

SBI reduced its lending rate for home and auto loans by 0.05 percentage points

State Bank of India Chairman Rajnish Kumar on Thursday said there was limited room for further easing the lending rate. It seems so, he said in reply to a question if the rate cut cycle is over for now. “If you look at the bond yields, they have gone up in the recent past. So, I think the headroom available for cutting down interest rates, both deposit and lending (seems limited). Unless you cut the deposit rate, you cannot cut the lending rate. For the time being, we are in for a much more stable interest rate,” he said.

Last week, the country’s largest lender reduced its lending rate for home and auto loans by 0.05 percentage points. To a question if recapitalisation in public sector banks (PSBs) by the government could lead to increase in interest rate, he said, “quite possible.”

There may be 10-15 basis point spike following the issuance of recapitalisation bonds leading to an increase in yield, he said, on the sidelines of an event organised by the Bhartiya Yuva Shakti Trust here.

Last month, the government unveiled Rs 2.11 lakh crore two-year road map for strengthening non-performing asset-plagued PSBs, which include recapitalisation bonds, budgetary support, and equity dilution.

The programme entails mobilisation of capital, with maximum allocation in the current year through budgetary provisions of Rs 18,139 crore, and recapitalisation bonds to the tune of Rs 1.35 lakh crore over the next two years.

The balance will be raised by banks from the market by diluting government equity. The government’s equity dilution would help banks raise about Rs 58,000 crore. The government equity, according to the current policy, can come down to 52 per cent in state-owned banks.