SBI may not follow RBI in raising rates

MUMBAI: State Bank of India (SBI), the country's largest bank, may refrain from raising rates in the near future even if the banking regulator, the Reserve Bank of India, hikes policy rates. This was indicated by SBI's managing director Hemant Contractor in response to a media query on whether SBI would raise interest rates if RBI were to hikes policy rates. "Till now we have passed on, but we have to look at asset quality and things like that... Also, with credit growth slowing, the ability of banks to pass on the hike is a little limited," he said. SBI has pegged its base rate at 10 per cent, which is among the lowest among banks. In fact, most banks have not raised rates after RBI raised rates on September 16, 2011. Bank officials fear that the increased lending rates will hurt borrowers who may find it difficult to repay their monthly installments and, in turn, default on loans. Secondly, they feel the demand for loans has come down due to already alleviated rate of interest. Another rate hike will further dampen loan growth. Recently, SBI chairman Pratip Chaudhuri had said that demand for loan has come down. "For banking industry, loan growth is 4.5 per cent from year to date (from April to early October) and for SBI it is 5 per cent. RBI is slated to announce its half-yearly policy on October 25 and many economists and money market dealers feel that the central bank will raise policy rates by at least 25 basis points to control inflation. Headline inflation has touched 9.72 per cent, much above RBI's comfort level of 6-7 per cent. Meanwhile, SBI's Contractor said that the bank will take a call on raising funds through medium-term notes (MTN) in November. "If MTN happens, it will be upwards of 500 million dollar," he said soon after announcing a launch of foreign travel reloaded prepaid card in Saudi Riyal currency.