Flushed with Rs 70K cr excess liquidity, SBI to hold rates

State Bank of India (SBI) Chairman Pratip Chaudhuri on Monday said the bank's reliance on sticky savings and long-tenor fixed deposits make it comfortable to hold on to lending rates, which are the lowest in the system.

"Right now we are not raising the rates," he said after announcing the bank's first quarter results.

SBI net profit fell 13.6 per cent to Rs 3,241 crore, still making it the third largest profit-making company after Reliance and ONGC.

He said the bank was sitting on excess liquidity of around Rs 70,000 crore, out of which around Rs 20,000 crore came in after the liquidity tightening by the Reserve Bank to protect the tottering rupee.

Chaudhuri, however, parried a specific question about as to how long would the bank be able to hold on to low rates. At 9.7 per cent, the base rate of the State Bank of India is the lowest in the industry.

He reasoned that unlike some of its peers like Yes Bank and HDFC Bank, which have hiked their interest rates over the past fortnight, SBI does not depend on short-term funds.

"We are not funding our assets with short-term funds from the bond market. We are funding them with savings bank deposits, which is the cheapest source of funds, and fixed deposits which are also of a relatively long tenor," he said.

Banks which borrow short and are lending long have a comparative disadvantage in a situation like this, Chaudhuri said.

The comments come within days of two private lenders -- Yes Bank and the second largest private sector lender HDFC Bank -- hiking their minimum lending rates following Reserve Bank's last month move to squeeze liquidity.

For HDFC Bank it is a climb back to the higher level as it had earlier slashed its base rate to 9.6 per cent. Its current base rate is 9.8 per cent, 10 bps higher than SBI's.

Others like Axis Bank and foreign lender Deutsche Bank have also hiked their deposit rates, generally seen as a precursor to a lending rate increase. .

"We were very surprised that some of our competitors took their base rate below ours but could not hold for long. Right now we have the lowest/best base rate," Chaudhuri said.

To curb speculation in the rupee, the Reserve Bank announced a series of liquidity tightening moves including restricting banks' overnight borrowings and sale of government bonds in two moves last month.

Rates in the money market shot up as a result of the central bank's move, which has resulted in some banks experiencing pressure in their cost of funds and hence hiking lending rates.