FM can manage govt borrowing without impacting rates: SBI

While Finance Minister Pranab Mukherjee presented the Union Budget, the market gasped when it was announced that the country’s fiscal deficit stood at 6.8% and that the government may need to borrow about Rs 4 lakh crore, resulting in the expectations that bond yields may harden ahead and interest rates may shoot up. However, in an exclusive interview, R Sridharan, Managing Director of State Bank of India, said the government may be able to manage its borrowing programme without crowding out private investments or making interest rates go up drastically. “I expect deposits to grow at 20-22% during the current fiscal 2009-2010. That should result in something like Rs 850-860 crore growth of deposits for the entire banking sector this year. If you assume that 25% of that will be invested in government securities, statutory liquidity ratio (SLR) securities, the amount available would be to the extent of something like Rs 2,20,000-2,30,000 crore for investment in central government securities,” he said. “In the initial stages, the yields might see a small spike but in the medium term, I feel that this borrowing programme can be managed by both the government and the RBI without dramatic downturn in the credit availability or also massive spike in interest rates,” Sridharan said.