2 hrs ago
SBI Sees Near-Term Benefit as RBI Raises Rates
India’s central bank raised the rate it charges banks to borrow money.
State Bank of India chief C S Setty said banks may benefit for the next two or three quarters.
That is because some bank loans adjust their interest rates quickly after a central bank rate change.
Banks may not need to raise what they pay depositors as quickly, partly because there is plenty of money in the banking system.
Setty said rising prices will matter when people and businesses decide whether to borrow.
He expects the economy to remain active over the next two quarters.
Higher rates and El Niño could make some farm loans harder to repay.
But he does not expect a major rise in bad loans across the banking system.
The Reserve Bank of India raised its repo rate by 25 basis points to 5.5%, its first increase in more than three and a half years.
SBI Chairman C S Setty expects banks to benefit for two to three quarters because some loans reprice quickly while deposit rates may rise more slowly.
Setty said ample banking-system liquidity and limited competition for deposits could restrain near-term deposit-rate increases.
He said inflation and inflation expectations, more than the rate hike alone, would shape credit growth and borrowing decisions.
Setty flagged possible pressure on agricultural loans from higher rates and El Niño but said he did not expect major system-wide asset-quality risks.
- Who
- State Bank of India Chairman C S Setty and the Reserve Bank of India.
- What
- The RBI raised the repo rate by 25 basis points to 5.5%; Setty expects banks to benefit for two to three quarters as some loans reprice faster than deposits.
- Where
- India.
- When
- The rate decision was announced Wednesday; Setty forecast benefits over the next two to three quarters.
- Why
- Repo-linked and other externally benchmarked loans can reprice quickly, while ample liquidity may limit near-term increases in deposit rates.
Key facts
- Repo rate increase
- 25 basis points, to 5.5%.
- RBI policy stance
- Changed from “Neutral” to “Calibrated Tightening” by a 4:2 majority.
- Expected benefit period
- Two to three quarters, according to C S Setty.
- RBI inflation projection
- Consumer price inflation is expected to average 5.8% over the next three quarters; core CPI is projected at 4.4% for FY27.
- RBI GDP forecast
- FY27 growth forecast raised to 7.1% from 6.7%.
- Potential credit-quality pressure
- Setty cited higher interest rates and El Niño as possible pressures on agricultural loans, but did not foresee major system-wide asset-quality risks.
Quotes
CS Setty
Chairman of State Bank of India
“So, as you rightly said, I think the two quarters, maybe two to three quarters, are definitely beneficial in terms of the repo hike.”
CNBC TV 18
“If inflation remains as per the projections of the RBI, I don't think there will be a greater impact on credit growth.”
CNBC TV 18
Sources
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