Union Bank cuts base rate by 10 bps to 10.65 per cent

Public sector Union Bank of India today announced a downward revision in its base lending rate by 10 basis points to 10.65 per cent from 10.75 per cent, signaling a softening of interest rates.

The Reserve Bank of India is also likely to keep policy rates lower, as inflation fears have largely evaporated with food inflation falling below 1 per cent during the week ended 17 December 2011.

Banks in India have been tightening lending rates for the past one year or so after the RBI raised its policy rates 13 times since August 2008 in a bid to rein in inflation.

However, any decline in lending rates would be gradual, as banks have to provide for higher deposit rates as well.

Lending has also been a casualty with loan growth in India falling to 7.4 per cent in the current financial year so far, compared with nearly 11 per cent last year.

The RBI has set a loan growth target of 18 per cent for the current fiscal.