SBI rules out lending rate hike

The country's largest lender State Bank of India (SBI) today said it was not in favour of hiking lending rates despite the Reserve Bank of India's (RBI) 12th consecutive rate increase last month.

"We had contemplated that (interest rate hike). Right now indications are that the margins are quite robust and the net interest income for the September quarter is also pretty good. That is why we didn't think it was necessary to hike the rates," SBI chairman Pratip Chaudhuri told reporters in Mumbai.

Additionally, "a hike in rates will also make us uncompetitive," he said, adding early next week SBI's asset liability committee (Alco) will meet to take a final call.

A majority of the lenders have refrained from hiking rates after the RBI hiked its key rates by 25 basis points in a mid-quarter policy review on September 16.

Two mid-sized private lenders, ING Vysya and Dhanlaxmi, are the only ones that have passed on the rate increase to their customers following the RBI move.

SBI's base rate, or the minimum rate of lending, stands at a competitive 10 per cent following the increase effected after the July policy hike of 50 bps.

The SBI chairman said bankers, who met RBI Governor D Subbarao yesterday as part of the customary pre-policy meet before the credit policy announcement on October 25, had asked for a pause in hikes due to weak global cues.

"Indicators are not very favourable. So we told RBI that in this context, if you again go in for a rate hike, it will only make the matters worse," Chaudhuri said.

In a bid to curb the uncomfortably high inflation, which stood at 9.78 per cent in August, RBI has raised its key policy rates a record 12 times over the past 19 months.

The repeated rate hikes have led to slowdown in demand for credit and also increased anxieties over asset quality.

SBI has clocked a credit growth of 5 per cent during the Q2 over the past year, as against the industry's 4.5 per cent, Chaudhuri said.

He said the bank will surpass the previous quarter's net interest margin of 3.62 per cent in its earnings for the second quarter.

Admitting that there have been some slippages, he said there have been "significant" recoveries as well during the quarter. The government lender recovered Rs400 crore from a state power utility in the July-September period.

When asked on provisioning and if he expects the situation to normalise in the third and fourth quarters of FY12, the SBI chief answered in the affirmative.

SBI had stunned the market with a Rs20.8 crore net profit in Q4 of FY11 on higher provisioning and given a guidance that the higher provisioning under heads like doubtful loans and retirement and pension benefits among others, will continue till the September quarter.

Volatility in both the bond and equity markets will lead to higher provisioning on mark to market losses, he said.

The bank, downgraded by the ratings agency Moody's yesterday for want of core capital and concerns over asset quality, will be lending to better rated corporates to save on providing additional capital, Chaudhuri said.

He said the bank will also save an additional Rs3,000 crore in capital as its entire portfolio of Rs30,000 crore to exporters is soon going to be covered under the export credit guarantee scheme and by doubling the SME portfolio to over Rs65,000 crore.