SBI chief CS Setty expects further 50 bps rate hikes in December, rules out retail loan quality concerns
A possible move towards higher interest rates could weigh on borrowing and spending in discretionary consumption segments, but is unlikely to affect the overall quality of retail loans across the banking system, State Bank of India (SBI) Chairman CS Setty, who also heads the Indian Banks' Association (IBA), said on Monday.
Setty said SBI anticipates a further 0.50 percentage point increase in interest rates in the Reserve Bank of India's (RBI) December policy review, followed by a pause in February 2027.
"If a couple of rate hikes are going to be there, the discretionary consumption demand and the consumption credit will be impacted," Setty said while speaking at the annual Business Standard BFSI Insight Summit.
However, he noted that the country's expected economic growth of 7.1% in the current financial year should help sustain demand from productive sectors, limiting the impact of higher borrowing costs on these segments.
Earlier this month, the Reserve Bank of India (RBI) raised interest rates by 0.25 percentage points, marking its first rate hike in more than three years amid concerns over inflationary pressures.
The central bank also changed its monetary policy stance from neutral to calibrated tightening. The minutes of the policy meeting, released last week, further strengthened analysts' expectations of additional rate increases in the coming months.
Asked whether the immediate repricing of loans linked to external benchmarks following RBI rate hikes could affect asset quality, Setty said there was little reason to be concerned about retail credit quality at the banking system level.
"Broadly from a system-level perspective, I don't think we should be really worried about the asset quality on the retail front," Setty mentioned.
However, he acknowledged that borrowers with high levels of debt could face repayment challenges if interest rates rise by a cumulative 0.75 percentage points.
Setty expressed support for the proposal to introduce a merchant discount rate (MDR) on UPI transactions, saying it would help banks fund investments in payment infrastructure and risk management systems.
He added that the Indian Banks' Association (IBA) was engaging with all stakeholders to ensure merchants do not pass on the additional MDR cost to customers through higher charges.
Setty also announced that SBI is developing a new version of its Yono mobile banking application, called 'Yono Bharat', aimed at expanding digital banking access among Jan Dhan account holders.
The platform, expected to be launched within a year, will target more than 17 crore Jan Dhan account holders within SBI's overall depositor base of 53 crore.
SBI aims to increase Yono's user base from the current 11 crore to 30 crore by 2030 with the new version, Setty stated.
Highlighting the cost advantage of digital banking, he said a digital transaction costs the bank just Re 1, compared with more than ₹40 for a customer visit to a branch.
Addressing concerns over artificial intelligence (AI) and its potential impact on employment, Setty said adopting new-age technologies also involves significant costs.
He stressed that banks and companies would assess AI investments based on the productivity improvements they deliver rather than viewing the technology simply as a replacement for human workers.
"AI deployment would be evaluated on the productivity gain. It's not merely replacing a human. And many of the Western companies which have aggressively gone into AI realised that probably it makes sense to put a man there instead of an (AI) agent," he said.
Setty also said banks would avoid aggressive lending using the more than $133 billion raised through diaspora deposits under a recently concluded concessional swap scheme.
He added that the funds would be deployed over a period of up to three quarters.
(With inputs from PTI)
Garvit Bhirani is a journalist based in Gurugram. He is a Deputy Chief Content Producer at LiveMint, where he covers national and international news stories, focusing on accuracy and compelling storytelling for readers. <br><br> With a total of six years of experience in journalism, he has previously worked with Vaco Binary Semantics for Google, taking on the role of news curation lead, and reported from the field on health, education, and agriculture stories for 101reporters and News9. He has also served as a content editor for entertainment and news media organisations. <br><br> Garvit holds bachelor’s and master’s degrees in journalism and mass communication from Guru Gobind Singh Indraprastha University and Gurugram University, respectively. During college days, he joined India’s only non-profit student journalism network, where he anchored daily news updates and produced his own weekly show called ‘Data Fix’. <br><br> He was selected for the YES Foundation Media for Social Change Fellowship in Delhi, the Talking Data to the Fourth Pillar residential workshop, and the VOICE Fellowship in Pune. <br><br> He holds certificates in COVID-19-verification reporting, data journalism, food & agriculture, tech policy, media literacy and countering misinformation, and tackling election disinformation courses from Thomson Foundation, IndiaSpend, The Dialogue, US Mission in India, and AFP. <br><br> He can be reached on <a href="https://www.linkedin.com/in/garvit-bhirani">LinkedIn</a> or on <a href="https://x.com/GarvitBhirani">@garvitbhirani</a> on X
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