SBI, HDFC Bank tease RBI with 15 bps rate cut

State-run lender State Bank of India (SBI) and leading private sector lender HDFC Bank have cut their base lending rates by 15 basis points each to 9.85 per cent from 10 per cent, effective 10 April 2015.

While SBI said the new rate will be effective 10 April, HDFC Bank said its new rate will be effective 13 April.

The announcements follow an RBI's decision as stated in its monetary policy statement today, that it would decide on any future rate cuts depending on how banks react to its earlier rate cuts.

''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,' RBI noted in its policy statement.

RBI said the transmission of its front-loaded rate reductions into their lending rates is critical for determining future policy action.

'Comfortable liquidity conditions should enable banks to transmit the recent reductions in the policy rate into their lending rates, thereby improving financing conditions for the productive sectors of the economy,' the central bank said.

SBI chairman Arundhanti Bhattacharya said other lenders should follow the move and lower their rates. She also hinted at lowering of deposit rates going forward.

Bhattacharya had, earlier in the day, sought to defend the decision of banks not to lower lending rates despite two successive moves by the Reserve Bank of India since January to ease monetary policy.

This has invited criticism from RBI Governor Raghuram Rajan who dismissed the demand made by SBI for a reduction in cash reserve ratio (CRR) prior to the policy, as "irrelevant", saying there is no correlation between lower CRR and cheaper loans.

The RBI left the CRR unchanged in its monetary policy today.

"I don't understand why the market has got so enthused about a cut in the CRR. It is irrelevant at this point, as far as the lending rates go," Rajan said while speaking at an analysts meet.

He said effecting even a 1 percentage point cut in the CRR, which is the amount of deposits banks have to mandatorily park with the RBI without any interest, will help reduce the lending rates by only 0.07 to 0.08 percent. Moreover, such a cut will release over Rs80,000 crore into the market permanently, he said.