The State Bank of India's Chairman Dinesh Khara expects an increase of 40-90 basis points in commercial lending rates as the central bank fights inflation.
"If there are favourable numbers coming from other indicators, the rates may not go back to 5.15% (pre-pandemic level) but, of course, the effort will be to normalise the excess liquidity in the system," Khara told BQ Prime's Menaka Doshi on the sidelines of World Economic Forum in Davos.
The Reserve Bank of India's decision to raise the repo rate and the cash reserve ratio will lead to "Rs 87,000 crore worth of excess liquidity getting sucked out", Khara said.
That has prompted banks to hike their lending rates. Yet, according to him, the increase has not slowed down demand from retail and small and medium enterprises.
"As far as SMEs are concerned, the overall interest cost is around 8-12% depending upon the leverage they have," Khara said.
Retail customers, he said, are witnessing a 9-10% increase in salaries which will keep the the equated monthly instalment-to-net monthly income ratio at similar levels.
"The EMI may not go up as much as net monthly income may go up," Khara said. "In inflationary conditions, it always makes sense to buy assets which are improving in terms of value and EMI which remains more or less on the same level. So to that extent the borrowers will be benefited."
Large corporate balance sheets wouldn't be affected by such hikes as they have "deleveraged quite a lot in the last few years".
The largest Indian bank hopes to maintain a similar growth in loan book in FY23 as in the last fiscal. "We recorded about 11% growth in loan book last year, which is better than the industry average. We hope to see a similar growth."
Watch the full interview:
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