SBI increases interest rates on corporate loans
Bangalore: State Bank of India (SBI) has increased the rates on corporate loans by up to 50 basis points (bps). This step is mainly taken to help the bank in improving its net interest margin (NIM) over the span of next few months. The NIM is the difference between the cost of funds and the interest earned.
In the end of first quarter of the current fiscal, SBI's NIM came down to 2.3 percent. The bank aims to bring back to three percent and want to end the current financial year with a net interest margin of 2.55-2.6 percent. Bank's executives said that the low NIM could be because of the decline in the credit deposit (CD) ratio. The high NIM in September 2008 was due to a high CD ratio of around 72 percent. The ratio has now dropped to 67 percent amidst the global financial crisis.
Earlier the bank trimmed its deposit rates by 25 bps. A senior official form SBI said that the move was aimed at helping companies that park their current account funds in this instrument. The rate of interest on current account is zero.
However, officials also said that once the credit demand picks up, the Reserve Bank of India (RBI) would take steps to shift to a tighter monetary policy regime. Consequently, SBI and other banks would have to raise rates to counter competition from other asset classes as the stock market sentiments shows improvement.
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