A day after the Reserve Bank of India (RBI) reduced the cash reserve ratio by 25 basis points, State Bank of India (SBI), the country’s largest lender, cut its minimum lending rate, or base rate, by the same margin to 9.75 per cent. The new rate, effective September 20, will benefit all its customers whose loans are linked to the base rate.
“The bank will take a hit of about Rs 1,200 crore (annualised) from the base rate cut,” said Chaudhuri. However, it would not impact margins as the move was expected to boost loan growth and result in higher interest income, he added. The chairman said the bank would not cut deposit rates for the time being.
Other lenders are expected to follow suit shortly. K R Kamath, chairman and managing director of Punjab National Bank, said the lender would look at how the cost of funds was panning out. “Following the reduction in CRR, there is a downward bias in the interest rate scenario,” said Kamath. PNB is not in favour of cutting deposit rates immediately. Bank of Baroda Chairman and Managing Director M D Mallya said it would review rates in a week.
United Bank of India Chairman Bhaskar Sen said, “Deposit accretion has been quite robust while credit is yet to pick up.” He added the bank's asset-liability committee would meet in a couple of days to review the base rate.
Andhra Bank might review its base rate within a fortnight, said Executive Director K K Misra. Corporation Bank Chairman and Managing Director Ajai Kumar said, “We will factor in the cost of funds and our asset-liability committee will meet in the next few days.”
| BASE RATES Where each bank stands | |
| Bank | Base rate (%) |
| State Bank India | 9.75 |
| ICICI Bank | 9.75 |
| Punjab National Bank | 10.50 |
| HDFC Bank | 9.80 |
| Bank of Baroda | 10.50 |
| Axis Bank | 10.00 |
| Union Bank of India | 10.50 |
| Canara Bank | 10.50 |
| Source: Banks | |
This is the first reduction in SBI’s base rate since the system was introduced in July 2010. Since August 2012, SBI has been cutting the spreads over the base rate, thereby offering lower rates to new customers in select segments. SBI has already cut its deposit rates by 50-100 basis points in early September.
Chairman Pratip Chaudhuri said the bank passed on the benefit of the CRR cut to its customers. The CRR reduction will release Rs 2,500 crore for SBI. Chaudhuri had said the amount could be deployed to generate Rs 200 crore of interest income, assuming an eight per cent rate of return.
However, the reduction will not be applicable to borrowers whose loans are linked to the Benchmark Prime Lending Rate (BPLR). Chaudhuri said the bank was yet to take a call on BPLR, which was 14.75 per cent.