50 bps spike in deposit rates likely next week: SBI

"Deposit rates could go up by 50 basis points or more," SBI Chairman O P Bhatt told reporters on the sidelines of the annual Bancon here.

When asked as to when would the rate hike be announced, he said, "next week".
Stating that there has been a slight uptick in demand for credit, Bhatt said, "If credit growth picks up, more deposits can be attracted into the banking system by better pricing which is beginning to happen...In the current situation, they (deposit rates) can only go up. "

Bhatt sounded confident that the bank will be able to achieve credit growth of 19 per cent in the current fiscal, as both retail and investment demands are picking up.

Liquidity crunch, something which the Reserve Bank has flagged as a concern, is already forcing lenders to jostle for greater share of funds by increasing deposit rates, analysts say.

According to them, prospects of a very large amount getting drained out of the system due to the third quarter advance tax payments this month are only expected to compound the problem.

The liquidity situation will ease up by the last quarter of the fiscal as the Government spending will increase then, Prime Minister's Economic Advisor C Rangarajan said here on the sidelines of a bankers meet. He added that generally public spending increases in the last quarter of the fiscal.

Meanwhile, on the lending rates, Bhatt said the bank will take a call only in next month as it has already increased its newly introduced benchmark lending rate -- base rate, below which banks can't lend -- once this quarter.

A call on the rates under the old BPLR (benchmark prime lending rate) will also be taken next quarter, he indicated.

Meanwhile, reacting to RBI Governor D Subbarao's call to bankers to reduce their net interest margins (NIMs), Bhatt said, "I do not think the banking system would be able to be healthy with a lesser NIM...Indian banks, especially the public sector banks, need a NIM of at least 3 per cent."

Bhatt said that in spite of the pressure on the NIMs as a result of an upward bias in interest rates, SBI is confident of maintaining its NIM at 3.4 per cent in the ongoing (October-December) quarter.

On Subbarao's call to banks to expand overseas, either through acquisitions or organic growth, Bhatt said SBI, which is pecked 74th in the global ranking, was inundated with offers in the aftermath of the financial crisis but did not seal deals as it was unsure of their balance sheets.

"We do not want growth that will jeopardise us," he said. On his expectations from the mid-quarter review of the monetary policy by the Reserve Bank, which is due on December 16, Bhatt said he expects the central bank to pause on the rate hikes.

The RBI has hiked its key rates six times this year, the last one being on November 2 when the repo -- the rate at which it lends to the banks -- was hiked by 0.25 per cent to 6.25 per cent and the reverse repo -- at which it borrows from banks -- by 0.25 per cent to 5.25 per cent.