In 2013, the repo rate was around 10 per cent, the SBI Chairman said adding that since 2013, Reserve Bank's repo and bank interest rates for consumers have been moving in a completely aligned manner.
"Secondly, we have repeatedly mentioned that banking system's dependence ...in India is largely on depositors. Today, 90 per cent of my deposit is retail deposit. If I want to lend money cheap, obviously I will have to pay less to depositors; and in a country like ours where there is huge population of senior citizens and in the absence of social security schemes, the interest on deposits is a source of earning," Kumar said while speaking at the 92nd Ficci Annual Convention here on the theme 'making financial system robust to aspire a $5 trillion economy'.
At present, banks largely offer 3 to 4 per cent interest on deposits in savings accounts, and charge borrowers 8 per cent and above rate on loans.
On getting competition from government saving schemes, he said such instruments do not impact the banks much as they still command huge share in the deposit market.
"We can't lower the interest rates (on lending) without lowering the interest rates for depositors. And there is a point, a threshold below which we cannot reduce the interest rate for depositors. Third thing is that the credit cost in the country is very high because the default rates are very high, so the spread has to be necessarily high," said the head of the country's largest lender.
The loss due to defaults is very high currently and in such a scenario the spreads have to be necessarily high to cover for the credit costs, Kumar added.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.