SBI against raising rates on lending for now

From this month Bank of India (SBI), the country's largest lender, had increased the rates on domestic deposits but for time being it is against raising interest rates on lending. This move of SBI is being considered as to set the tone for other banks.

On Saturday meeting of the assets-liability committee (Alco) was held in which a decision was taken. For the second consecutive day Alco held the meeting to discuss the issue of interest rates in the wake raise in repo rates last week by the Reserve Bank of India's (RBI), or the rate at which it lends to banks, by 25 basis points to 8 per cent.

SBI is in a different situation as its cost of funds has gone up due to an increase in deposit rates earlier this month.

On Thursday, SBI chairman Om Prakash Bhatt had informed that the bank might take a decision on raising its prime lending rate or alternatively, increase the interest rate on some of its loans to deal with the higher cost of borrowings.

Hours before his bank’s Alco meeting in Mumbai, Bhatt said in Hyderabad that SBI in the present situation might absorb the hike and will decide only after a while.

A Bank of Baroda executive said, "We will wait and watch how the industry leader moves and then decide our stance."

Bank of India senior official clarified that for the moment there bank has no plans to change in rates. "Liquidity is our prime concern but the situation is expected to change after a week," the executive said.

The first installment of advance tax has tightened the liquidity position, is estimated to have sucked out around Rs 15,000 crore from the system.

However call rates have gone up to above 8.30 per cent and is expected to cross 8.50 per cent this week. The profit on 10-year government securities has established to 8.38 per cent on Friday following inflation hitting a seven year high of 8.75 per cent.