A cut in lending rate immediately impacts the income. When volumes are thin (of the credit pipeline), it is difficult to reduce these rates, SBI Chairman Arundhati Bhattacharya told reporters on Tuesday.

A bank needs other income to compensate for the dip in earning due to reduction in loan rates. Credit demand is only slowly inching up. There is some demand for loans from new projects in commercial real estate and the renewable energy segment.

Another SBI executive said a large portion of the loan portfolio was linked to the base rate. So, a cut in this rate leads to a widespread immediate effect. But when the interest rate on deposits is reduced, the benefits to the bank accrue only over a period. At present, SBI’s base rate is 10 per cent.

Bhattacharya said a a small cut of 25-50 basis points (bps) in the Reserve Bank of India’s repo rate was not going to reduce the cost of funds.

With ample liquidity in the system and tepid credit growth, SBI and Axis Bank had last week reduced interest rates on retail term deposits by 25-75 bps. SBI says it has excess liquidity of Rs 70,000 crore. Credit offtake was not expected to see any substantial traction till the end of the year.

On a query regarding the troubled SpiceJet airline, the SBI chief said the bank now had no exposure to the latter. It was a tough sector to crack and few airlines had become profitable, with challenges like high taxes and user fees at airports, she added.