SBI cuts prime lending rate by 75 bps; more banks to fall in line

State Bank of India, the country's largest lender, will cut its prime lending rate by 75 basis points with effect from 10 November. Accordingly, SBI's PLR will be reduced from 13.75 per cent to 13 per cent, chairman O P Bhatt said.

This is expected to make all SBI loans linked to prime lending rate, like housing loans and other consumer loans, cheaper to that extent.

SBI will also reduce deposit rates by up to 50 basis points from 1 December.

SBI being the largest lender, other banking majors like HDFC and ICICI Bank are expected to follow suit by the week-end.

Several public sector lenders, including Punjab National Bank, Union Bank, UCO Bank, Canara Bank, Bank of India, Bank of Baroda and Syndicate Bank, have already slashed their benchmark prime lending rates by 0.75 basis points after finance minister P Chidambaram met state-owned banks' heads to discuss the possibility of rate cuts.

Finance secretary Arun Ramanathan yesterday got assurance from private sector banks, including foreign banks, that they would consider an interest rate cut in a fortnight.

The Reserve Bank of India has taken a number of steps, including reduction in its key lending rate - the repo rate - as also banks' cash reserve and statutory liquidity ratios, to increase liquidity in the system.

The RBI is expected to have released an additional Rs2,60,000 crore into the financial system through these measures, but the high interest rate regime has acted  as a deterrent to credit flows.

The hardening interest rate cycle is now slowly getting reversed after RBI shifted focus to growth and eased money supply in the wake of global economic slowdown.