Continue to see extreme liquidity tightness: SBI head

Written By Unknown on Jumat, 20 September 2013 | 12.45

State Bank of India chairman Pratip Chaudhuri said extremely tight liquidity in the system prompted his bank to raise deposit and lending rates. In an interview to CNBC-TV18, he said the RBI's measures in mid-July to shore up the rupee had reduced SBI's liquidity cushion by around Rs 20,000 crore. He said the hike in rates was a pre-emptive step as he did not want to wait till the liquidity situation worsened further.

Chaudhuri does not expect the Marginal Standing Facility (MSF) to be reduced at today's RBI policy review. The MSF had been raised to 10.25 percent in July, making funds costlier for banks seeking short term money.

Chaudhuri expects SBI's net interest margins to be in the range of 3.55-3.60 percent. He said he has recommended to the RBI that it reduce Cash Reserve Ratio by 1 percentage point.

On non-performing loans, he said the situation was "challenging".

Below is the verbatim transcript of his interview on CNBC-YTV18

Q: You raised your base rates. Can you tell us how the margins will shape up in the current quarter? Is there going to be an improvement?

A: The margins are likely to be between 3.55 and 3.60 percent and that's the guidance we have given.

Q: What is the reason for raising. The expectation from the credit policy is that the marginal standing facility (MSF) rate, if anything may fall. Will not that reduce your cost of deposits? Why did you have to raise it just a few hours before the policy?

A: I am surprised you are asking this question because you have been a strong votary of monetary transmission and when the policy rates were lowered by 25 basis points, you were disappointed that we lowered our base rate by 5 bps. Now that the policy rates have gone up by 300 bps and we have waited two months to increase the base rates by 10 bps. Therefore, the logic is very much there for anybody to see.

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