Soon after reduction in repo rate by the Reserve Bank, country's largest lender State Bank of India (SBI) on Tuesday slashed minimum lending or base rate by 0.4 per cent to 9.3 per cent, setting the trend for benign interest rate regime.
With the reduction in the base rate, all loans, including home, auto and corporate, would become cheaper by at least 0.40 per cent.
The bank has decided to reduce the base rate by 0.40 per cent to 9.3 per cent with effect from October 5, SBI said in a statement.
"RBI has cut interest rate by 0.50 per cent, we have reduced it by 0.40 per cent," SBI Chairperson Arundhati Bhattacharya said.
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The bank will also be cutting fixed deposit rates by 0.25 per cent across various maturities from October 5, she added.
"We will definitely keep looking at ways and means of bringing down rate further. Going ahead, weakening of rate will add to growth of credit," Bhattacharya said.
With the reduction, SBI's base rate is the lowest in the market. The reduction by the largest lender is likely to be followed by others.
Meanwhile, Andhra Bank also reduced its base rate by 0.25 per cent to 9.75 per cent effective on Tuesday. Base rate is the minimum rate below which a bank can't lend to consumers.
On cost of fund, Bhattacharya said "on monthly basis, the fall is quite good, also the fact that there are more of retail deposits now than savings."
ICICI Bank will also cut interest rate soon, its CEO Chanda Kochhar said.
"Interest rate will come down and large part of today's cut will get transmitted," Kochhar said.
RBI cut benchmark repurchase (repo) rate from 7.25 per cent to 6.75 per cent, lowest in four-and-half-years.
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The reverse repo rate, at which it accepts banks' excess liquidity, will be 5.75 per cent, while the cash reserve ratio has been kept unchanged at 4 per cent.
Soon after the RBI policy announcement, Finance Minister Arun Jaitley expressed hope that banks will transmit the benefit to borrowers so as to boost investments and the economy.
"We are looking forward now to the transmission of these cuts which will effectively help to boost confidence and investment. They will also help to realize the economy's medium term potential growth rate," Jaitley said.
(With Inputs From PTI)