Mumbai, Sept 20 (PTI) : The State Bank of India, the country’s largest lender, said Friday it expects lending and deposit rates be propelled upwards by the festive season demand ahead.
SBI Chairman Pratip Chaudhuri, commenting shortly after the RBI announced its policy review today, said “now the busy season has started so there is a huge credit demand and banks are scrambling for deposits. Deposit rate, I think, will go up and accordingly to that lending rates can also go up.”
Banks would first raise the deposit rates and then they will calibrate the lending rate, he added.
On Thursday, SBI increased its base rate by ten basis points to 9.80 per cent, becoming the first major state-run bank to increase lending rates after short-term rates rose as a result of RBI's liquidity tightening moves announced in July.
SBI also increased the spreads on auto and home loans by as much as 20 basis points, which will affect new borrowers.
Home and auto loan borrowers typically pay a margin or a spread above the base rate. This margin or spread depends on the bank’s perception of the risk, and the size of the borrowing.
Noting that the base rate or the minimum lending rate is not a function of the policy rate, Chaudhuri said it is a function of bank's liquidity position and ability to meet the deposit and lending situation.
On the deposits front, SBI increased its offering for products maturing in 7 days, 179 days, 211 days and less than a year by one percentage point to 7.50 per cent each.
Commenting on the policy review, Canara Bank Executive Director A K Gupta said: “There will not be much impact on the interest rate immediately.”
The RBI has done a balancing act, he said. Much of the borrowing by banks are from the MSF window and reduction of 75 basis points will lower the cost of funds, Gupta said.