State Bank of India Chairman Dinesh Kumar Khara has advocated for tax relief on interest income, as it would enable banks to attract more savings that could be utilized for funding long-term infrastructure projects. At present, banks are required to deduct tax when the interest income from deposits held across all branches exceeds Rs 40,000 in a year. However, interest earned up to Rs 10,000 in savings accounts is exempt from tax.
Chairman Khara emphasized that providing some relief in the Budget regarding tax on interest earnings would incentivize depositors. He further highlighted that the banking sector uses the mobilized deposits for capital formation in the country.
Expectations for Loan Growth
Considering the current economic growth rate, the SBI chairman anticipates a loan growth of 14-15 percent during the fiscal year 2024-25. He explained that the typical approach is to consider the GDP growth rate plus inflation, with an additional 2-3 percent. Based on this calculation, a loan growth rate of around 14 percent is projected. However, the actual credit growth will depend on lending opportunities and risk appetite.
Deposit Growth and Loan-to-Deposit Ratio
Regarding deposits, Chairman Khara mentioned that they grew by 11 percent last year. The bank currently has an excess Statutory Liquidity Ratio (SLR) ranging from Rs 3.5 lakh crore to Rs 4 lakh crore. This surplus SLR ensures that there is no pressure to raise deposit rates in order to maintain the loan-to-deposit ratio. The current loan-to-deposit ratio stands at around 68-69 percent, allowing room for lending without increasing deposit interest rates.
However, Chairman Khara stated that the bank values deposits and aims to improve the deposit growth rate. Recently, the bank increased the interest rates for short-term deposits in order to encourage deposit growth. The goal for this year is to achieve a deposit growth rate of at least 12-13 percent.
Last month, SBI raised the fixed deposit rates for select short-term maturities by up to 75 basis points. For retail term deposits of 46-179 days, the rate increased to 5.50 percent from the previous 4.75 percent.