New Delhi: A day after the Reserve Bank of India's mid quarter (July-September) monetary policy announcement, India’s largest lender the State Bank of India on Tuesday slashed its base rate, the minimum benchmark rate below which RBI does not allow a bank to lend, by 25 basis points to 9.75 per cent. The bank took this decision in its asset liability committee meeting concluded late on Tuesday evening.
With this move borrowers will pay less interest for taking any form of retail or corporate loans. The rate cut was followed by the central bank's policy action of cutting cash reserve ratio (CRR) by 25 bps to 4.50 per cent. CRR is the portion of deposits that banks mandatorily park with RBI. It does not earn any interest. The reduction in CRR is estimated to release Rs 17,000 crore to banks. SBI alone will get around Rs 2,500 crore, which leaves an opportunity to lend more.
"As we already reduced the spread of retail loans, it does not make any sense to cut those rates further. The rate cut in CRR was a major trigger behind decreasing base rate. This also transmits the policy actions to the borrowers," a senior official from SBI told moneycontrol.com on condition of anonymity.
With this rate cut, SBI has equalized with ICICI Bank , the second largest bank in terms of asset size, offering a base rate of 9.75 per cent too. So far, it is lowest base rate available in the market. However, this move is likely to prompt other major banks to reduce their respective base rates. Most of the state-owned banks are offering a base rate of 10.50 per cent.
Earlier, SBI had reduced the interest rates on home and auto loans by over 50 basis points, effective from August 07. However, it had not changed the base rate.
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