SBI, the largest lender in the country is also the first to cut base rate after RBI's policy announcement and this move would be followed by other banks as well
Mumbai: Acting on Reserve Bank of India (RBI)'s cue, country's largest lender State Bank of India (SBI) announced a reduction in the minimum lending rate by 0.25%, giving relief to all types of borrowers, reports PTI.
"The cut in base rate was driven largely by the RBI's decision to cut the CRR," Pratip Chaudhuri, Chairman, SBI told PTI.
The bank's Asset Liability Committee (Alco) met on Tuesday and decided to cut the base rate to 9.75%.
The reduction is effective from 20th September.
The decision by the country's largest lender comes a day after the Reserve Bank cut cash reserve ratio (CRR) by 0.25% to 4.5% inducting Rs17,000 crore into the system.
SBI is the first to cut base rate after RBI's policy announcement and its rate is among the lowest in the market. Other banks are likely to follow suit and cut lending rates in the coming days.
Chaudhuri said the cut will have a "very minor" impact of up to four basis points or 0.04% on its margins.
Of the bank's Rs6 lakh crore loan book, up to Rs5 lakh crore is linked to the base rate mechanism, Chaudhuri said.
The base rate mechanism came into effect in July 2010 as a new transparent alternative to the earlier benchmark prime lending rate (BPLR). The remaining Rs1 lakh crore is linked to the BPLR, he added.
"We have an excess statutory liquidity ratio (SLR) holdings of up to Rs50,000 crore and if the loan demand goes up, we can definitely use that money," Chaudhuri said, sounding confident that the rate cut will prod loan seekers and help the bank achieve its sagging credit growth.
Chaudhuri had earlier expressed concerns over the sagging loan demand and cited it as a reason to cut its deposit rates stating deposit growth was outpacing credit growth this fiscal.
Reacting to the RBI move, a majority of bankers had said rates would soften from hereon.