Bank Deposit Rate Hikes Unlikely for 2-3 Months Amid Surplus Liquidity: SBI Chairman

New Delhi, Oct 9 (KNN) State Bank of India (SBI) Chairman C S Setty on Thursday said banks are unlikely to raise deposit rates over the next two to three months due to surplus liquidity in the banking system, while the Reserve Bank of India's (RBI) shift towards monetary tightening is expected to support banks' net interest margins (NIMs) for the next two to three quarters.

Speaking a day after the RBI's monetary policy announcement, Setty said the current liquidity position could delay deposit rate adjustments. 

“I believe that next two-three months, there may not be any rate action on the deposits because we have sufficient liquidity in the system,” Setty told reporters here, PTI reported.

However, he cautioned that sustained high credit growth could prompt some banks to increase deposit rates to fund lending.

He highlighted that depositors should receive positive real returns as inflation rises.

SBI Targets 14-15% Credit Growth

Speaking about SBI’s expectation of sustaining credit growth at 14–15 per cent, Setty said, “While there is no ideal credit growth rate, at least in SBI, we believe that you have to be 2-3 per cent more than the nominal GDP. If you are looking at a nominal GDP of 12 per cent, 14-15 per cent growth rate (in credit) is something that will sustain the momentum of the growth.”

Addressing concerns over banks' lending standards following an increase of nearly USD 133 billion in deposits from the Indian diaspora, he noted that the additional liquidity would be absorbed over the next two to three quarters through credit demand and the RBI's liquidity management measures.

“And in the interim, when you have spike in the liquidity, the RBI is also taking measures to absorb the liquidity. I think this combination of absorption activity of RBI and the requirement of credit growth would enable us that there is no exuberance or imprudence on lending,” Setty said, as quoted by PTI.

Rate Hikes to Support Bank Margins

He emphasised that the RBI's rate hikes, along with the possibility of further increases, would benefit banks' NIMs over the next two to three quarters. He declined to provide specific projections ahead of SBI's earnings announcement.

More than 50 per cent of loans in the banking system are linked to external benchmark-based lending rates, which are repriced in line with changes in the RBI's repo rate, he noted.

SBI Calls for Broader Financial Inclusion

On the demand for a five-day work week in banks, Setty said bank managements were discussing the issue with stakeholders through a committee formed under the Indian Banks' Association (IBA). He said it was too early to comment on the outcome.

Setty also said the next phase of financial inclusion should focus on making banking simpler, safer and more personalised, while ensuring that existing bank accounts are actively used. Although more than 95 per cent of India's population has a bank account, improving account usage remains an important priority, he added.

He urged foreign investors to consider India's long-term economic transformation rather than focusing solely on the current size of its economy.

(KNN Bureau)