NEWS & ADVICE : FIXED DEPOSITS
SBI raises interest rates on corporate loans
By Neelima Shankar
Oct 8, 2009
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India's largest lender, State Bank of India, has started increasing rates on corporate loans by up to 50 basis points (half a percentage point).

This is to help the bank improve its Net Interest Margin (NIM) over the span of next few months. The NIM is the difference between the cost of funds and the interest earned.

This is to help the bank improve its Net Interest Margin (NIM) over the span of next few months. The NIM is the difference between the cost of funds and the interest earned.

SBI's NIM came down to 2.30 percent by June-end. The bank wants to bring it back to 3 percent and wants to end the current financial year with a net interest margin of 2.55-2.6 percent.

Bank's executives said that the low NIM could be because of the decline in the Credit-deposit ratio (C-D) ratio. The high NIM in September 2008 was due to a high C-D ratio of around 72 percent. The ratio has now dropped to 67 percent amidst the global financial crisis.

Bank's executives said that the low NIM could be because of the decline in the Credit-deposit ratio (C-D) ratio. The high NIM in September 2008 was due to a high C-D ratio of around 72 percent. The ratio has now dropped to 67 percent amidst the global financial crisis.

The bank's officials said that while the credit offtake remains slow, the bank has been able to revise its interest rates on loans offered to mid and large size companies in the second quarter (july-sep). An executive said "We have been able to increase lending rates by up to about 50 basis points, especially for those companies that have come up for repricing"

The executives said that this will help the bank to increase its margins marginally. As the credit offtake gathers momentum, the margins will rise.

Earlier the bank slashed its deposit rates by 25 basis points. A senior official form SBI said that the move was aimed at helping companies that park their current account funds in this instrument. The rate of interest on current account is zero.

However, officials also said once the credit demand picks up, the Reserve Bank of India would take steps to shift to a tighter monetary policy regime. Consequently, SBI and other banks would have to raise rates to counter competition from other asset classes as the stock market sentiments shows improvement`

 


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