State Bank of India (SBI) is planning raise its base rate during the current quarter. However, the country’s largest lender is not yet clear on what exactly will the hike be.

Talking to reporters after announcing the bank’s public issue of lower tier-II retail bonds in Mumbai on Friday, SBI chairman OP Bhatt said, ?May be you will see an increase in our base rate during the current quarter. Our cost of deposits, which forms a significant component for calculation of our base rate, are constantly going up since the middle of the past quarter.”

SBI will launch its Rs 1,000 crore retail bond issue on Monday. The issue is a part of its tier II offering and will comprise an issue of Rs 500 crore with an option to retain over-subscription up to Rs 500 crore for issuance of additional bonds totalling Rs 1,000 crore.

He said liquidity was not only tightening but volatile too and banks needed to factor in all these things in their base rates. ?Every interest rate in the system has gone up, plus there is also the pressure of increasing the provisioning to 70%.We will have to go for an increase in our base rate to protect our margins, .?

Bhatt said during the September quarter, SBI’s cost of deposits was among the lowest the industry had witnessed in the last one year, but this started moving north since September end. Credit growth had also been ?muted? this year at around 18-19%, he said, adding banks were unlikely to meet the target set by RBI of achieving 20% growth.

Stating that there had been a downward trajectory in inflation, which was likely to continue for the next 3-6 months, Bhatt said RBI would be in a ?dilemma on whether to pause (on its rate hikes) or do something?. SBI chief financial officer SS Ranjan said 60% of the bank’s borrowers had shifted to the base rate so far in terms of loanbook value.

?The bank would launch first of its kind offering of bond issue to raise up to Rs 1,000 crore for retail investors next week, and will have a range of such products in future,? Bhatt said, adding, ?such an issue would also increase our ability to raise long-term resources?.

The bonds will be issued in two series ? Series 1 and Series 2 having maturity of 10-years, respectively, with a face value of Rs 10,000 each. These bonds are not redeemable at the option of the bondholder or without the prior consent of RBI.

The bonds will carry a coupon rate of 9.25% for Series 1 and 9.5%for Series 2.