SBI chairman sees upward pressure on interest rates

State Bank of India (SBI) chairman A K Purwar said there was an upward pressure on interest rates. "It's a trying time for bankers."

The impending rise in interest rates is in the backdrop of the recent repo rate hike by the Reserve Bank of India (RBI), rising inflation and fast-shrinking, liquidity in the system.

"There's a pressure on short-term deposit rates, on housing loan rates and on all sub-PLR lending rates. The sub-PLR lending rates, at which corporates borrow funds, have already gone up by 25-50 basis points. We are examining various options and are yet to take a decision on rate raises. But we will keep our benchmark prime lending rate (BPLR) stable," Purwar said.

He was speaking to the media on the sidelines of a press conference announcing a mutual fund joint venture between SBI and Societe Generale Asset Management.

All players in the home loan market are examining a rate raise following the increased risk weightage. "It is the more aggressive players in the market that may have to raise rates faster," Purwar said. "We will increase the rates, if at all, only after the ongoing festival bonanza."

With the tie up with Societe Generale, SBI aims to be the number two player in the mutual fund business in a four years' time. Purwar said, "We do not rule out inorganic growth for achieving this goal."

Societe Generale picked up 37 per cent in SBI Mutual Fund for $36 million. The banking behemoth is also looking for foreign partners in its other subsidiaries, SBI Caps and SBI Factoring.

Purwar said the bank will be raising $500 million by the end of this month through medium-term notes for its overseas operations in across 28 countries.

On whether the bank would carry out a transfer of government securities in order to shield its investment portfolio from rising interest rates, Purwar said, "If interest rates rise further we will certainly consider a transfer. I thought a few days earlier that the worst was over, but it does not seem so."

Punjab National Bank, Bank of India, Corporation Bank, Syndicate Bank and UTI Bank availed the RBI scheme and carried out transfer of government securities in the second quarter of this financial year following the over 150 basis point rise in the first half.