Sitting on huge liquidity, SBI sees downward correction

Interest rates for both advances and deposits are headed southward, according to State Bank of India (SBI) chairman OP Bhatt.

At the end of XLRI?s convocation here on Saturday, Bhatt told FE: ?The current demand for credit does not seem to be very good, but you never know whether it is owing to lack of demand or because people are waiting for prices and interest rates to change.?

On whether interest rates would soften in the near future, Bhatt said, ?I think there will be some downward correction,? adding that it would be applicable both for deposits as well as loans.

Bhatt said the bank?s asset-liability committee (ALCO), which meets once every week, would decide on interest rate cuts in the new financial year ahead.

Bhatt said there is ?some pressure? on the bank?s margins as it has been receiving huge deposits, particularly since the global financial meltdown, not only in India but at all its overseas centres too as people are shifting accounts from other banks to SBI, which has now earned the sobriquet ?Safe Bank of India?.

Bhatt added that the bank?s liquidity in the fourth quarter of the fiscal has been ?huge, thousands of crores?. However, SBI?s credit growth during Q4 has not been as good as expected, he said.

The chairman said the bank?s 8%-scheme is picking up slowly as it was finding more takers every month. SBI has since February launched a series of products on which the interest rate is 8% for the first one year while normal rates are to be charged thereafter.

?These are all efforts at bringing down the interest rates at the lowest possible,? he said.

Bhatt said the current economic deceleration has put strain on several industries including airlines, automobiles, textiles, steel, real estate, etc, but the bank is lending to almost all of them. He, however, admitted that a rise in non-performing assets is a possibility.

SBI is going to charge an interest rate of 10% for the first year for a loan taken to buy Nano, Tata Motors? Rs 1-lakh car. The interest rate on the loan would thereafter be as per the bank?s normal auto loans.

Bhatt said Tata Motors, which expects tens of lakhs of people from all over the country to book the Nano, needed somebody to manage jobs like collection of funds, etc, on an all-India basis and had thus appointed SBI as its agent.

?We expect that most of the applications for Nano would be sold through SBI and that most of the loans for the car would also be taken from the bank,? said Bhatt.