SBI hikes base rates by 20 bps to 10%

State Bank of India (SBI), on Wednesday, raised its base rates by about 20 bps. The 10 percent base rate will be effective from Thursday. Its management attributes the higher cost of funds as the reasons for the same. Arundhati Bhattacharya, the bank’s chairperson says that though the costs of funds are off the peak, they are still at higher levels. It is in line with the market rates but is still lower than the sector and no further hike is seen in the near future, she adds.

Currently, depositors expect better returns due to rising inflation and the move is aimed to get more of them on board, Bhattacharya tells CNBC-TV18.

Bhattacharya is also confident of no increase in nonperforming loans (NPLs) or bad assets on the back of this hike. With the busy season going forward, demand will be ticking, she elaborates. Margins for the bank will not see a dip, while credit growth may hover around 18 percent, she adds.  

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Below is the edited transcript of her interview to CNBC-TV18.

Q: What has caused this rise in rates?

A: It is on account of the rise in cost of funds. In July, the rates actually went up by 300 bps. From that platform, it has come down, but the repo side has actually gone up by 50 bps since we had last raised it.

We have really not raised to that extent but by only 20 bps. It is in line with the market and we still remain one of the lowest.

Q: Would you expect a gentle nudge across the board and the sector?

A: I don't think so. Others are already sitting at 10.25 percent. It is only the very large banks that are sitting at 10 percent. We were at 9.8 percent. It will all depend on individual bank’s cost of funds.

Q: Would you be surprised if you saw a series of base rate hikes across the industry?

A: I cannot tell you because they have to run their Asset-Liability Committee (ALCO). From the July level, the cost of funds has definitely gone up. If there are banks that have already a comfortable margin on that, then we will really not need to raise the rates. But, if that is getting compressed, then yes.

We have several challenges including the ability to provide sufficiently for any of the loans that may be weak. All of those have to be taken in to consideration. We still remain one of the lowest and therefore this is something that is warrant.

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Q: Will SBI itself need to hike rates further in order to manage cost of funds?

A: No. We are comfortable with this 20 bps hike. In the near future, we are not considering anything further.

Q: Do you see any collateral damage in terms of lower demand for loans because of this rise as well some tipping of more non-performing loans (NPLs). Interest rates have become very expensive for small companies and a little bit more can tipple some of them into bad asset category?

A: Already, most of the market is at 10.25 percent. I don't feel that this will lead to any tipping of loans into bad assets. The demand is set to increase on account of the busy season and just for a 25 bps hike for the demand to go down seems highly unlikely.

Q: Would margins be better now in the third quarter?

A: I don't want to give any margin guidance. With the 20 bps hike, we should see our margins remaining as they were. I don't want to mention a figure, but they should not take a dip. They should be probably better than Q2.