The move comes just a few hours after the RBI decided to maintain status quo on policy rates due to the fact that banks hadn’t transmitted the impact of the previous two rate cuts earlier this year into their lending rates.
India’s largest lender State Bank of India (SBI) and HDFC Bank today cut base rates by 15 basis points to 9.85 percent effective April 10 and April 13 respectively.
Base rate is the minimum rate the RBI charges while lending to its customers and the minimum interest rate of a bank below which it cannot lend, except in cases allowed by the central bank.
SBI is the first major bank to cut its base rate. Private banking major HDFC Bank followed suit soon after and also cut some deposit rates by 25 bps. The move comes just a few hours after the RBI decided to maintain status quo on policy rates due to the fact that banks hadn’t transmitted the impact of the previous two rate cuts earlier this year into their lending rates.
In its policy statement the RBI today said: Transmission of policy rates to lending rates has not taken place so far despite weak credit off take and the front loading of two rate cuts. With little transmission, and the possibility that incoming data will provide more clarity on the balance of risks on inflation, the Reserve Bank will maintain status quo in its monetary policy stance.
In an interview to CNBC-TV18, SBI chairperson Arundhati Bhattacharya said the time is right for the rate cut and the bank is contemplating cutting the deposit rate for 1-year bucket.
Furthermore, chief economic advisor Soumya Kanti Ghosh said, “The cut in base rate is basically frontloading the rate cut as the RBI has been doing so as to give a fillip incipient recovery which we just are beginning to see on our loan book. So, that is a positive development.”