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Liquidity, loan growth to push interest rates: Bhatt

Liquidity, loan growth to push interest rates: Bhatt

While addressing a gathering at the India Economic Summit 2010, State Bank of India Chairman O P Bhatt also said credit offtake could also help push interest rates higher. Live Stream

Tight liquidity conditions combined with loan growth could push interest rates skyward in the coming days, State Bank of India Chairman O P Bhatt said on Monday.

"Interest rates have a slightly upward bias...(due to) liquidity combined with some more credit offtake, which is going to take place. So these two together may push up interest rates," Bhatt said on the sidelines of the India Economic Summit 2010 organised by the World Economic Forum int he national capital.

Asked about current liquidity conditions, he said the situation is comfortable. Liquidity has come under pressure owing to the huge public issue of Coal India a few weeks ago, besides a surge in spending during the festival season.

On the upcoming bond issue by the bank, Bhatt said: "We are planning for euro bond. We would like to go for roadshows sometime next week." The nature of the issue is such that details on the quantum of bonds cannot be divulged, he added.

When asked if the size could near 500 million euros, Bhatt refused to confirm and only said: "It could be."

"We are expecting to raise a benchmark-size five-year euro bond, as we've a significant pipeline of existing customers who require the euros," Bhatt had said last week.

On the cost of funds for India's largest bank, Bhatt said it has been stable during the past one month.

"Our cost of funds are stable during the last one month and over the period of time, they have come down," Bhatt said.

The cost of funds of many banks have come under pressure owing to an increase in deposits rates by many banks, following a series of tightening measures during the year.

The Reserve Bank of India raised interest rates for the sixth time this year to tame rising inflation earlier this month, raising key short-term lending and borrowing rates by 25 basis points each.

Accordingly, the short term lending rate (repo rate) stands at 6.25 per cent and the borrowing rate (reverse repo) at 5.25 per cent.

The RBI has, however, left the cash reserve ratio or bank rate, which is the amount of cash that banks have to park with the central bank to maintain prudential norms, unchanged at 6 per cent.