The country’s largest bank, State Bank of India (SBI), will fix its base rate at around 8%, bank chairman OP Bhatt said on Friday, hinting that lending rates might go up and that borrowers may have to pay more. The bank’s board will meet in Mumbai on Saturday to discuss the issue and a final decision would be taken by June 15, Bhatt said. The SBI chairman, however, observed that there was no consensus on the rate after a meeting of leading public sector banks at SBI’s headquarters in the city.
?We will fix our rates around 8% and will calculate the rate on the basis of the cost of deposits,? said Bhatt after chairing the bankers’ meet, adding there is an upward bias to interest rates. Bhatt had earlier said that the bank would fix the rate so that the bank remained competitive. Currently, a one-year term deposit in SBI fetches an interest rate of 6%, while a 181-day deposit fetches 5.25% and a 91-day deposit earns 4.75%.
KR Kamath, chairman of Delhi-based Punjab National Bank, had said about a month back that it may fix its rate between 8.5% and 9%. Analysts believe that private sector banks may be able to fix their base rates at slightly lower levels than those of public sector banks, given that they are relatively cost-efficient and would like to be competitive.
From July, the Benchmark Prime Lending Rate (BPLR) will no longer be applicable and all banks will have to lend to customers with the base rate as the floor. Banks will get time to adjust to the new system though, but will need to be transparent on how they arrive at the rate.
One of the reasons for the new system being introduced is that the earlier method of computing the rate was not transparent enough. While in the initial draft guidelines the central bank had proposed some criteria for arriving at the base rate, it has subsequently allowed banks to choose whatever criteria they consider relevant while fixing the rate. The base rate can be changed every quarter if banks feel necessary in the context of the interest rate environment.