The largest lender of the country, State Bank of India has decided to bring another rise in its base rate by as much as 25 basis points. According to top officials of the bank, this hike may come even before the annual monetary policy review by RBI on May 03, 2011.
The bank currently has a base rate of 8.25% which is the lowest in banking industry.
"We (SBI) are looking at revising the base rate. We need to increase it as the cost of funds has gone up. The decision will be taken in the asset-liability committee meeting this month," said an official of the bank.
The official said that there has been a rise in the cost of funds for the bank owing to the higher rates of deposits it offered in the last few months. He also said that the interest rate hike is necessary to protect the net interest margin (NIM).
"We had expected NIMs (of SBI) to come off gradually, by 40 bps over the next four quarters. However, the pace of increase in system deposits implies that the NIM compression can be greater and could be front-loaded as well. Although SBI has raised retail deposit rates since June 2010 to a near-peak level of 9.25 per cent, the full impact of this has not yet filtered through into deposit costs," a report by Morgan Stanley said.