After the recent reduction in the lending rates or the base rates by major banks, the State Bank of India chief on Thursday said further cuts will happen only after credit growth picks up.
The SBI chief expects credit growth to pick up in the fourth quarter as the overall demand push is still low.
“As I said, we have lowered the base rate and taken the first step. The next step should be credit growth. When that happens then we can consider lowering (base rate) further,” said Arundhati Bhattacharya, Chairperson of State Bank of India, after the banks’ 60th Annual General Meeting.
She highlighted that at this point, the Commercial Paper (CP) market lends funds to corporates at a much lower interest rate than banks’ lending rates or the base rates.
“So, if you have to compete on the CP market front, then we need to lower base rates by more than a 100 bps (basis points), which given the credit growth is not really something that can be done,” Bhattacharya said.
Though the RBI has cut the repo rate or the interest rate at which it provides short-term liquidity to banks by 75 basis points since January, banks have cut their base rates only by about 25-30 basis points.
But given the kind of credit growth we are seeing right now, I don’t see much space there (to cut base rate further), she added.
“As more and more (State) governments come out with power purchase agreement bids, the demand push will come from various areas like those. So, that needs to gather speed and only then you will see these things translate into banks’ books,” she stated.
SBI’s overall credit growth target this year is at 14 per cent with focus on retail and corporate segment.