HDFC Bank, the second largest private sector lender in the country, has decided to reduce its base rate or minimum lending rate by 10 basis points to 9.6%. The rate cut is effective from March 30, 2013, people familiar with the development said.
The private lender is the first bank to reduce its lending rate after the Reserve Bank of India (RBI) cut the repo rate by 25 basis points on March 19, 2013.
With this revision HDFC Bank's base rate is now lowest among large banks in the country. ICICI Bank's base rate is currently at 9.75%, while the minimum lending rate for Axis Bank is 10%.
In the public sector, State Bank of India (SBI) has one of the lowest base rates. The country's largest commercial bank's base rate is currently at 9.7%.
While RBI has reduced the repo rate by 100 basis points and the cash reserve ratio (CRR) by 75 basis points, banks have cut their base rate by much smaller magnitude. This has raised doubts over effective transmission of monetary policy actions.
HDFC Bank has reduced its base rate by 40 basis points since the beginning of this financial year after taking into consideration the latest rate cut. ICICI Bank has pared base rate by 25 basis points and SBI by 30 basis points during this period. Axis Bank has not changed its minimum lending rate so far this financial year.
While a few state-run lenders like Punjab National Bank and Bank of Baroda have cut their base rate by 50 basis points since the beginning of April, 2012 their base rates are still relatively high at 10.25%.
Bankers claimed that high deposit rates and tightness in liquidity situation have restricted their ability to lower their lending rates.
According to CRISIL, subdued deposit mobilisation and an all-time high credit-deposit ratio will limit banks' ability to cut lending and deposit rates across the board. It estimates that the median base rate reduction of 10 banks between April, 2012 and February, 2013 was only 20 basis points.
Bank of America Merrill Lynch in a recent report noted that reduction in lending rates was essential for reviving India's slow economic growth.
Global downturn, high interest rates, muted investments and poor rains have led to deceleration in India's economic growth. The gross domestic product (GDP) is now expected to grow at its slowest pace since 2003-04. The GDP is estimated to grow at five% in the current financial year.
The private lender is the first bank to reduce its lending rate after the Reserve Bank of India (RBI) cut the repo rate by 25 basis points on March 19, 2013.
With this revision HDFC Bank's base rate is now lowest among large banks in the country. ICICI Bank's base rate is currently at 9.75%, while the minimum lending rate for Axis Bank is 10%.
In the public sector, State Bank of India (SBI) has one of the lowest base rates. The country's largest commercial bank's base rate is currently at 9.7%.
While RBI has reduced the repo rate by 100 basis points and the cash reserve ratio (CRR) by 75 basis points, banks have cut their base rate by much smaller magnitude. This has raised doubts over effective transmission of monetary policy actions.
HDFC Bank has reduced its base rate by 40 basis points since the beginning of this financial year after taking into consideration the latest rate cut. ICICI Bank has pared base rate by 25 basis points and SBI by 30 basis points during this period. Axis Bank has not changed its minimum lending rate so far this financial year.
While a few state-run lenders like Punjab National Bank and Bank of Baroda have cut their base rate by 50 basis points since the beginning of April, 2012 their base rates are still relatively high at 10.25%.
Bankers claimed that high deposit rates and tightness in liquidity situation have restricted their ability to lower their lending rates.
According to CRISIL, subdued deposit mobilisation and an all-time high credit-deposit ratio will limit banks' ability to cut lending and deposit rates across the board. It estimates that the median base rate reduction of 10 banks between April, 2012 and February, 2013 was only 20 basis points.
Bank of America Merrill Lynch in a recent report noted that reduction in lending rates was essential for reviving India's slow economic growth.
Global downturn, high interest rates, muted investments and poor rains have led to deceleration in India's economic growth. The gross domestic product (GDP) is now expected to grow at its slowest pace since 2003-04. The GDP is estimated to grow at five% in the current financial year.
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