SBI raises lending, deposit rates, says NIM to be at 3.5%

Moneycontrol Bureau

Shares of State Bank of India jumped around 7 percent intraday on Thursday after it hiked base rate, the minimum rate at which it can lend, to 9.8 percent from 9.7 percent. The move came just a day before RBI reviews its monetary policy.
The bank has also hiked rates for loans under the benchmark prime lending rate, an older system of computing interest rates, to 14.55 per cent from 14.45 per cent. The lending rate hikes are effective from today.
SBI also increased the spreads on auto and home loans by as much as 0.20 per cent, which will affect new borrowers. Home and auto loan borrowers typically pay a margin, or a spread, above the base rate, which is arrived at as per the risk and quantum of borrowing.
Battling short-term rates in the aftermath of RBI's liquidity tightening measures, SBI became the first state-run bank to hike lending rate. But the rationale for SBI hiking the base rates is not because the short-term rates or liquidity is tight. The reason why SBI has hiked base rates is to balance out the book itself because the advances are growing faster than deposits.
For example, in the past two months the advances of SBI have risen by Rs 44,000 crore whereas the deposits have risen only by around Rs 12,000 crore. That is because the rupee depreciation has resulted in the domestic currency loans becoming more attractive and short-term paper being more expensive. So SBI has mentioned that it will still stick by the domestic net interest margin (NIM) guidance that it had of around 3.5 percent.
Earlier in January 2013, SBI had cut base rates by around 5 bps to 9.7 percent. Don't miss: RBI to hold rates steady, reversal of tightening steps unlikely
Meanwhile, banking stocks are on fire today on US Federal Reserve's move to continue buying bonds at the current rate of USD 85 billion a month for now. Strategists and traders were expecting the central bank to announce a USD 10-USD 15 billion reduction to its asset purchase programme. The Fed statement cited insufficient evidence of improvement in economic data to warrant a reduction in monetary stimulus. The Fed also downgraded its outlook for the economy.
All eyes are now on the credit policy under the new RBI chief Raghuram Rajan.
Bank Nifty had surged around 6 percent in early morning trade. At 11:34 hrs SBI was quoting at Rs 1,792.00, up Rs 118.25, or 7.06 percent. (Posted by Nasrin Sultana with inputs from Ekta Batra and PTI)