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SBI to announce base rate today,likely to set it at 8%

STATE Bank of India,the countrys largest lender,has signalled it may fix the base rate for lending at 8% or less,which may prompt some private banks to offer lower rates to ensure corporate borrowers remain loyal. The bank plans to announce the base rate by Tuesday.It would be 8% or less,not more, said OP Bhatt,chairman of the bank that controls a fifth of the market.He was speaking to reporters after a meeting of bank chairmen with finance minister Pranab Mukherjee. The SBI management is debating whether to peg the base rate at 7.5% or at a slightly higher 7.75% to retain the edge over some private banks.SBI can well afford to do this since it has access to a big chunk of relatively low-cost deposits,thanks to its pan-India footprint. In a bid to end the practice of retailers and small enterprises subsiding large companies,the Reserve Bank of India has mandated that all banks arrive at a base rate for lending,below which no loans can be extended.Once this rule comes into force on July 1,large corporates,which benefited from so-called sub-prime lending rate (PLR) lending,will have to pay at least the base rate. Most state-run banks may fix their base rate between 8% and 9% since their cost of funds does not vary significantly,unlike the private banks.For Indias top private lenders,the challenge will now be to fix the base rate close to SBI or even lower if they have to woo blue chip corporates that are used to shopping around for bargain rates. Bank of Baroda chairman & managing director MD Mallya said his banks base rate would be in the range of 8-8.5% while Bank of India CMD Alok Misra said the banks asset-liability committee will meet soon to fix the rate.Punjab National Bank chairman & managing director KR Kamath said its rate may be below 8.5%. Indias largest private sector lender,ICICI Bank,said it plans to announce its base rate on Wednesday.We will announce our base rate on June 30, ICICI Bank managing director & chief executive Chanda Kochhar told reporters on Monday.

6/29/2010