SBI hikes base rates by 20 bps to 10%

State Bank of India (SBI), on Wednesday, raised its base rates by about 20 bps. The 10 percent base rate will be effective from Thursday. Its management attributes the higher cost of funds as the reasons for the same. Arundhati Bhattacharya, the bank's chairperson says that though the costs of funds are off the peak, they are still at higher levels. It is in line with the market rates but is still lower than the sector and no further hike is seen in the near future, she adds.

Currently, depositors expect better returns due to rising inflation and the move is aimed to get more of them on board, Bhattacharya tells CNBC-TV18.

Bhattacharya is also confident of no increase in nonperforming loans (NPLs) or bad assets on the back of this hike. With the busy season going forward, demand will be ticking, she elaborates. Margins for the bank will not see a dip, while credit growth may hover around 18 percent, she adds.  

Also read: FM to consumer: Please share my optimism, start spending

Below is the edited transcript of her interview to CNBC-TV18.

Q: What has caused this rise in rates?

A: It is on account of the rise in cost of funds. In July, the rates actually went up by 300 bps. From that platform, it has come down, but the repo side has actually gone up by 50 bps since we had last raised it.

We have really not raised to that extent but by only 20 bps. It is in line with the market and we still remain one of the lowest.

Q: Would you expect a gentle nudge across the board and the sector?

A: I don't think so. Others are already sitting at 10.25 percent. It is only the very large banks that are sitting at 10 percent. We were at 9.8 percent. It will all depend on individual bank's cost of funds.

Q: Would you be surprised if you saw a series of base rate hikes across the industry?

A: I cannot tell you because they have to run their Asset-Liability Committee (ALCO). From the July level, the cost of funds has definitely gone up. If there are banks that have already a comfortable margin on that, then we will really not need to raise the rates. But, if that is getting compressed, then yes.

We have several challenges including the ability to provide sufficiently for any of the loans that may be weak. All of those have to be taken in to consideration. We still remain one of the lowest and therefore this is something that is warrant.

On November 06, 2013, at 11:10 hrs State Bank of India was quoting at Rs 1866.20, down Rs 7, or 0.37 percent. The 52-week high of the share was Rs 2550.00 and the 52-week low was Rs 1452.90.

The company's trailing 12-month (TTM) EPS was at Rs 198.74 per share as per the quarter ended June 2013. The stock's price-to-earnings (P/E) ratio was 9.39. The latest book value of the company is Rs 1445.60 per share. At current value, the price-to-book value of the company was 1.29.

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