State Bank of India Chairman Rajnish Kumar today said that there is limited space for further easing of the lending rate. It seems so, he said in reply to a question if the rate cut cycle is over for now. “If you look at the bond yields, they have gone up in the recent past. So, I think the headroom available for cutting down the interest rates, both deposit and lending (seems limited). Deposit rate unless you cut you cannot cut lending rate … for time being we are in for much more stable interest rate,” he said. Last week, the country’s largest lender State Bank of India (SBI) reduced its lending rate for home and auto loans by 0.05 percentage point. To a question, if recapitalisation in public sector banks by government could lead to increase in interest rate, he said, “quite possible.”
There may be 10-15 basis point spike following the issuance of recapitalisation bonds leading to an increase in yield, he said on the sidelines of an event organised by Business and Youth Starting Together here. Last month, the government unveiled Rs 2.11 lakh crore two-year roadmap for strengthening NPA-plagued public sector banks, which include recapitalisation bonds, budgetary support, and equity dilution.
The programme entails mobilisation of capital, with maximum allocation in the current year through budgetary provisions of Rs 18,139 crore, and recapitalisation bonds to the tune of Rs 1.35 lakh crore over the next two years. The balance will be raised by banks from the market by diluting government equity. The government’s equity dilution would help banks raise about Rs 58,000 crore. The government equity, as per the current policy, can come down to 52 per cent in state-owned banks.