SBI cuts base rate by 40 bps to 9.30%

State Bank of India (SBI), the country's largest commercial bank, has cut its base rate by 40 basis points from 9.70 per cent to 9.30 per cent after the Reserve Bank of India (RBI) today announced a 50 basis point reduction in its key repo rate.

SBI said the revised rate will be effective from 5 October 2015.

The 50 bps reduction in RBI repo rate is expected to nudge other banks as well to soften lending rates and cheer up the housing and auto markets this festival season.

Following the 50 bps cut in the repo rate, the rate at which RBI lends money to commercial banks, came down to 6.75 per cent from the current 7.25 per cent.
Though the transmission of monetary policy generally takes time, banks are now expected to cut rates within days due to pressure from borrowers as well as the government.

With today's 50 basis point cut, which came as a surprise for the industry, RBI has lowered policy rate by as much as 125 bps since the beginning of the current fiscal.

Welcoming the RBI announcement, Arundhati Bhattacharya, chairman, SBI, said ''Overall, the policy announcement has a slew of positive surprises with the most notable being the projection of a benign inflation trajectory even throughout FY17 and reaffirmation of a continued accommodative policy.''

''The increase in FPI limit and the reduction in SLR & HTM will counterbalance each other. The proposal to reduce the risk weights on low cost housing loans will incentivise the banks. The decision to circulate a concept paper for increased usage of cards is a step in the right direction for a cashless society in quest for a digitised India'' the SBI chairman added.

RBI, meanwhile, has also proposed to reduce the risk weightage on affordable housing applicable to lower value but well collateralised individual housing loans. This move, if approved, will provide a major boost to the struggling housing sector as well.

However, the central bank is concerned over its policy rate reduction failing to get transmitted through bank loans.

"While the Reserve Bank's stance will continue to be accommodative, the focus of monetary action for the near term will shift to working with the Government to ensure that impediments to banks passing on the bulk of the cumulative 125 basis points cut in the policy rate are removed," RBI said in its monetary policy announcement.

"Clearly, interest rates will come down, base rates will come down. A large part of the cut will get transmitted. When I say a large part of the thing (repo rate) will get transmitted, it should mean more than half," a PTI report earlier in the day, quoted ICICI Bank's managing director and chief executive Chanda Kochhar as saying.