Limited space for rate cut, says SBI chairman Rajnish Kumar

New Delhi: Consumers for time being are unlikely to get further reduction in interest rates. India’s largest bank SBI chairman Rajnish Kumar  on Thursday said that there is limited space for further easing of the lending rate.

“If you look at the bond yields, they have gone up in the recent past. So, I think the headroom available for cutting down the interest rates, both deposit and lending (seems limited). Deposit rate unless you cut you cannot cut lending rate ... For time being we are in for much more stable interest rate," he said.

When asked whether, recapitalisation in public sector banks by government could lead to increase in interest rate, he said, “quite possible”. 

Mr Kumar said that there may be 10-15 basis point spike following the issuance of recapitalisation bonds leading to an increase in yield.

Last week, SBI had reduced its lending rate for home and auto loans by 0.05 percentage point.

Meanwhile, PFRDA chairman Hemant Contractor called for examining the sustainability of high returns of over 10 per cent to government employee NPS subscribers at a time when interest rates are in decline.

SBI Pension Funds, UTI Retirement Solutions and LIC Pension Fund Ltd are the three government-managed pension funds hired by the Pension Fund Regulatory and Development Authority of India that offers returns in the range of 10.16-10.52 per cent to central government employees. For the state level, the interest rate falls in the range of 10.16-10.31 per cent. 

"On the sustainability of returns, we have been talking to the government because now the interest rates are coming down. So, the returns that we get on debt instruments would come down,” Mr Contractor told reporters here. 

“Therefore, we do need to look at instruments like life cycle funds in order to broadbase the investment and get better returns. We do need to restructure.”