O. P. Bhatt, the Chairman of State Bank of India, while addressing a Federation of Indian Chambers of Commerce and Industry (FICCI) conference, said that high interest rates are necessary for the growth of banking system.

Mr. Bhatt said: "Depending on the speed of growth of assets, a change in the economic cycle and if there is increased growth, interest rates may increase between 25 and
100 basis points once the busy season sets in."

He said that a further hike in interest rates will depend on the liquidity condition in the market. Indian economy remains insulated from the adverse impact of global slowdown, due to strong financial heath of the Indian Banks.

Mr. Bhatt urged the industry to increase efficiency and volumes for adequate growth rate instead of asking for frequent interest rate cuts, a move that weaken the banking system. He further added: "Without a strong banking system, most of rural growth will get affected which in turn generates industrial demand".

The SBI chief ruled out further cut in interest rates as the bank is already offering the lowest interest rates in several segments. Regarding proposed merger of subsidiaries, Mr. Bhatt said that government may soon approve the merger of State Bank of Indore, while other mergers would be worked out after the government's nod.