State Bank of India reduces both lending and deposit rates

Top Indian lender State Bank of India has decided to reduce both its lending and deposit rates. The bank has cut its prime lending rate (PLR) by 75 basis points with effect from November 10. Its PLR will accordingly stand reduced at 13 per cent from the present 13.75 per cent.

On the deposits front, the bank has reduced its interest rates by 50 basis points across maturities from 91 days up to five years.

For maturities of five years and above, State Bank has cut its interest rates by 25 basis points, the bank said in a statement issued.

The deposit rate reductions come into effect from December 1. SBI deposits are growing at Rs 1,000 crore a day.

The cuts in interest rates were widely expected after the Reserve Bank of India slashed its cash reserve ratio (CRR) by 3.5 percentage points and the repo rate by 1.5 percentage points in recent weeks.

Speaking at a seminar on 6th Nov 2008, SBI Chairman O P Bhatt said that banks would need more capital because assets are growing at a higher rate and more capital brings in confidence and stability. He said SBI will have to raise tier II capital in the range of Rs 500-1,000 crore for the year to meet its domestic and overseas operations.

Mr Bhatt said: “Although there is ample liquidity in the system, credit normally picks up during this time of the year, with the busy season. Also government borrowing is higher during this time of the year. Simultaneously, FDI and FII inflows have dried up. All these things put together are likely to put some pressure on liquidity next month.”

Another concern voiced by the SBI chief was the possible rise in bad loans, following a downturn and sharp growth in assets over the past 4-5 years. He said NPAs will rise across sectors, including the diamond industry.



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