Mumbai: State Bank of India, the nation’s largest lender, cut its lending rate by 5 basis points (bps), a day after the Reserve Bank of India (RBI) slashed both its key lending rate and the cash reserve ratio (CRR) by 25 bps each in a bid to boost economic growth.
SBI cut its base rate, or the minimum lending rate, to 9.7% from 9.75%, effective Monday—a move that will benefit all categories of borrowers. In September, the bank cut its base rate by 25 bps to 9.75%. One basis point is one-hundredth of a percentage point.
Meanwhile, the Asset liability committees (Alco) of leading lenders—Punjab National Bank, Bank of India, Bank of Baroda, Central Bank of India and Union Bank of India (UBI)—will meet on Thursday to decide on a rate cut.
“Our Alco will meet tomorrow to decide on a rate action. Since pressure on profitability is an issue, we will have to take a call on both lending and deposit rates,” M.V. Tanksale, chairman and managing director of Central Bank of India told reporters in Mumbai.
Public sector banks have not been forthcoming till date in cutting their base rates despite a more-than-expected 50 bps cut in repo rate by the central bank in April.
Instead, they had opted to lower lending rates in certain segments such as home loans, auto loans and loans to small and medium enterprises.
“A 5 bps cut means nothing much to customers. This is kind of a token response to RBI’s rate action on Tuesday,” said Hatim Broachwala, an analyst at Karvy Stock Broking Ltd.
HDFC Bank Ltd and The Federal Bank Ltd, too, cut lending rates on auto loans but refrained from slashing their base rates. HDFC Bank reduced its vehicle loan rate by up to 50 bps, effective Friday. The car loan rates have been cut by 25 bps while two-wheeler loans were pared by 50 bps. HDFC Bank had reduced its base rate by 10 bps to 9.7% in December.
On Wednesday, Federal Bank reduced its car loan rates to 10.45% from 11.20% for a three-year tenure, and 11.7% for five years with immediate effect.
State-run UBI also extended its festive offer on home and auto loans till March 2013. Introduced in August, the bank is not charging any processing fee on these loans.
On Tuesday, shortly after the RBI rate cut, IDBI Bank Ltd was the first lender to take the central bank’s cue by slashing loan and deposit rates. National Housing Bank and Royal Bank of Scotland NV also cut their prime lending rates.
RBI cut its repo rate—at which it lends short-term funds to banks—to 7.75% and CRR, the portion of deposits banks need to park with RBI, to 4%.
SBI’s rate cut, though marginal, will prompt other banks to cut base rates, analysts said. “SBI’s rate has been among the lowest. Hence, a 5 bps cut is an addition. We expect more banks to cut rate soon,” said Vaibhav Agarwal, research analyst, at Angel Broking Ltd.
Meanwhile, Keki Mistry, vice-chairman and chief executive of India’s oldest mortgage lender, Housing Development Finance Corp., said it will wait till the cost of funds comes down before deciding on a rate cut, “which will take a couple of weeks”.
ICICI Bank Ltd, the country’s second largest lender, has indicated that it will reduce its lending rate to pass on the benefit of the RBI rate cut to customers.
In April, ICICI Bank had lowered its base rate by 25 bps to 9.75%.