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October 27, 2008 09:48 IST
State Bank of India [Get Quote] chairman O P Bhatt indicated on Sunday that the country's largest lender may not reduce interest rates despite the Reserve Bank of India lowering the repo rate and the cash reserve ratio.
He said despite liquidity injection by RBI, borrowers should not expect reduction in interest rates for short- and medium-term loans.
He, however, added that the measures announced by the government and RBI have starting yielding results.
Bhatt, who was in the city to attend an event organised by Indian School of Business, said though the liquidity conditions in the market are comfortable, it may change quickly as the demand for cash will increase during the festive season.
Banks have been looking for raising funds during the financial turmoil and a reduction of interest rates now will even out those efforts, the SBI chairman said.
The onus will be on the government to take more measures to maintain the liquidity, he said.
Over the last few weeks, the government and RBI have taken a host of measures to inject liquidity in the system, which had dried up last month. Despite the 100-basis point reduction in the repo rate, or the rate at which RBI lends to banks, and liquidity injection through a 250-basis point cut in CRR, banks have shied away from paring rates.
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