Mumbai: Acting on the cue from the Reserve Bank of India (RBI), the State Bank of India (SBI) on Tuesday announced a reduction in the minimum lending rate by 0.25 per cent, giving relief to all types of borrowers.
"The cut in base rate was driven largely by the RBI's decision to cut the CRR yesterday," State Bank's Chairman Pratip Chaudhuri said late on Tuesday evening.
The bank's Asset Liability Committee (Alco) met on Tuesday and decided to cut the base rate to 9.75 per cent.
The reduction is effective from September 20.
The decision by the country's largest lender comes a day after the Reserve Bank cut Cash Reserve Ratio (CRR) by 0.25 per cent to 4.5 per cent inducting Rs 17,000 crore into the system.
SBI is the first to cut base rate after RBI's policy announcement and its rate is among the lowest in the market. Other banks are likely to follow suit and cut lending rates in the coming days.
Chaudhuri said the cut would have a "very minor" impact of up to four basis points or 0.04 percent on its margins.
According to Chaudhuri, of the bank's Rs 6 lakh crore loan book, up to Rs 5 lakh crore is linked to the base rate mechanism.
The base rate mechanism came into effect in July, 2010 as a new transparent alternative to the earlier benchmark prime lending rate.
The remaining Rs 1 lakh crore is linked to the BPLR, he added.
"We have an excess SLR (statutory liquidity ratio) holdings of up to Rs 50,000 crore and if the loan demand goes up, we can definitely use that money," Chaudhuri said, sounding confident that the rate cut will prod loan seekers and help the bank achieve its sagging credit growth.
Chaudhuri had earlier expressed concerns over the sagging loan demand and cited it as a reason to cut its deposit rates stating deposit growth was outpacing credit growth this fiscal.
Reacting to the RBI move, a majority of bankers had said rates would soften from hereon.
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