New Delhi: The MD of State Bank of India (SBI) T S Bhattacharyya, has ruled out any immediate decline in interest rates for the short to medium term loans. "The prime factor acting against the lending rates was a lack of resources for long term lending and their slow growth. This coupled with the rise in cost of funds has put pressure on bank margins, so there is a no chance of the interest rates easing out as of now," he said.
Bhattacharya was talking to the media at a seminar organized by the Confederation of Indian Industry (CII). The chances of raising funds through NRI deposits are also not very bright as the Rupee is appreciating against the Dollar. There has been a tremendous rise in demand for credit in the industrial infrastructure sector, particularly the power plant and steel units and banks had to earn money from these corporate loans to make up for the regulatory compliances and subsidized rates, he added.
The lending industry off late has not performed pretty well for the banks and financial institutions. The rising interest rates, which made the EMI's skyrocket had caused a large number of people to default on their repayments. With the borrowers fleeing the market, banks were under tremendous pressure to perform. Festival discounts on interest rates and reduced processing fees were offered to bring back the borrowers but the RBI's move to increase the CRR by 50 basis points mopped up an estimated 16,000 crores from the market.
This increased the cost of funds for most banks and the smaller players felt the heat instantly. Banks have now begun to reduce deposit rates but have kept the interest rates at the same level. The festival offer extended by SBI on its home loans and other retail loans is expected to end on 31 December. What interest rates will be offered on various loans after this period is an open question.