The Telegraph
Since 1st March, 1999
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SBI moves closer to rate hike
- Increase in repo rates serves as trigger for a possible 0.25% rise in cost of loans

Mumbai, Nov. 14: State Bank of India (SBI) chairman A.K. Purwar today said the country’s largest bank is reviewing its short-term lending rates. Analysts feel the bank may raise interest rates by 25 basis points shortly.

Such a possibility has emerged after the Reserve Bank of India (RBI) in its mid-term review of the annual policy statement for 2005-06 raised the reverse repo rate by 25 basis points to 5.25 per cent. The reverse repo is an instrument through which the central bank mops up surplus liquidity from banks.

The banking industry is abuzz with speculation about a rate hike. Most bankers say that interest rates are poised to nudge upwards towards the end of the calendar year. The rate hike will hit housing loans and loans to buy cars and two-wheelers though many expect blue-chip companies to continue to raise funds at levels below the prime lending rate, which ranges from 10.25 to 11.25 per cent in the case of public sector banks.

The SBI chief, who was addressing reporters on the sidelines of the President’s meeting organised by the World Federation of Diamond Bourses and International Diamond Manufacturers Association today, said there was pressure on interest rates in the short-term but he refused to say when.

“Interest rate movements are very sensitive,” he added. Purwar further revealed that the bank was planning to raise Rs 3,300 crore by issuing bonds. SBI has already received the go-ahead from its board in this regard. “We have received the approval from the board to raise Rs 3,300 crore by issuing bonds, of which $200 million will be raised from overseas,” Purwar revealed.

The structure of the issue would be finalised in two to three weeks. Such a borrowing programme comes after it raised $30 million by selling bonds maturing in five years.

The bank has recently announced that it paid a floating rate of interest of 60 basis points more than the London inter-bank offered rate on these bonds. The bonds were sold under the medium-term note programme of the bank.

More acquisitions

SBI was recently in the news when the bank announced its third overseas acquisition. Not tired by these buyouts, it is now looking at more such targets.

Purwar said, as a policy measure, the bank was concentrating on acquiring smaller banks though it would look at medium and large-sized banks over a period of time.

While the bank has been looking out for potential targets in Asia and Africa, it has set its sights on a bank in Bangladesh, which the chairman did not name.

Purwar said the bank was awaiting approvals from the government for changes needed to split the shares of its associate banks. SBI had asked the government to make amendments in the SBI Act to allow investors to hold more than the limit of 200 shares for the listed associate banks.

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