State Bank of India (SBI), the nation's top lender by assets, said on Tuesday it would cut its base lending rate by 15 basis points to 9.7% effective June 8 after the central bank cut its key policy rate for the third time this year.
SBI reduced its base rate or minimum lending rate to 9.70% from 9.85%, in a big relief to home and auto loan borrowers.
While the Reserve Bank of India (RBI) has cut its lending rates by 75 basis points (0.75 percentage point) in three instalments, SBI has done so by 30 basis points (0.30 percentage point) in two tranches.
"The bank has decided to cut base rate by 0.15% to 9.70% effective June 8," SBI said.
Some other smaller state lenders also announced base lending rate cuts of between 25 and 30 basis points.
Earlier on Tuesday, the Reserve Bank of India (RBI) reduced its policy rate by 25 basis points to 7.25% from 7.50%.
RBI governor Raghuram Rajan urged banks to pass through the sequence of rate cuts into lending rates. Despite two repo rate cuts by RBI, very few banks have passed on the benefits to customers.
While many banks have started passing on the benefits of the monetary easing to the broader economy, the quantum of cuts lag the reduction in the policy rate.
Eight of the more than two-dozen state-run lenders, who dominate India's banking sector with more than 70% share of the assets, have yet to announce any interest cut this year.
Bankers have blamed tight liquidity and slower credit growth as reasons for not cutting rates aggressively. India's bank loan growth for the fiscal year to end-March was the slowest in 18 years.
"There is not overmuch of liquidity. More of liquidity would also enable better transmission of rate cuts," SBI chairperson Arundhati Bhattacharya said in a television interview earlier on Tuesday, following the RBI rate decision.
Welcoming the "timely repo rate cut" by the Reserve Bank, SBI chairperson Arundhati Bhattacharya said she "anticipates the rate cut will transmit through the banking system sooner than later".
SBI has guided for a loan growth of about 14% in the fiscal year that began in April, compared with an adjusted 10.5% increase posted last year.
Bhattacharya also said "with monsoon forecast going a little awry and the RBI upping its inflation projections for March 2016, the government should now push for more public infrastructure spends that would support growth in the near term and create more jobs."
The RBI's third interest rate cut came after subdued inflation to lend more support to an economy that the bank itself says is not doing as well as latest impressive growth numbers suggest.
The central bank also left open the possibility of further cuts later this year, even with forecasts of a below-average monsoon that could put pressure on food prices.
Reacting to the RBI move, mid-sized state-owned Allahabad Bank also cut its base rate by 0.3%. The base rate has been reduced to 9.95% from 10.25% effective June 8, the bank said in an exchange filing.
At the same time, Dena Bank and Punjab and Sind Bank lowered their base rate by 0.25% to 10%. With the reduction, all loans linked to the base rate will come down proportionately.
IDBI Bank, however, has reduced bulk deposit rate, a move which is a precursor to a cut in lending rate. Other banks are likely to follow suit in the next few days.
After the RBI decision, realty firms and consultants said the cut was likely to reduce borrowing cost for both home buyers as well as developers leading to increase in housing demand.
They sought further cut in interest rates as well as policy reforms for the growth of realty sector, which is facing a huge demand slowdown in last few years.
"It's a good move. Banks should now pass on the benefit to boost demand. Interest rate on home loans should be 9-9.5%," DLF's whole-time director Rajeev Talwar said.
Realtors' apex body CREDAI president Getamber Anand termed RBI's decision a good step but too less."Market was expecting bigger reduction. Banks should pass on the benefits immediately as per RBI direction," he added.
Parsvnath chairman Pradeep Jain hoped that banks would now pass on the benefit to the customers thereby stimulating the
"Such liberal moves coupled with policy reforms are necessary for the revival of the real estate sector in our country," Jain added.
CREDAI (NCR) president Manoj Gaur said the move had come as a breather for the real estate sector. He expected another 25 basis points cut in next 3-6 months time.
Property consultant JLL India chairman and country head Anuj Puri said the downward revision in RBI's repo rate will positively impact the sentiments surrounding the real estate market.
"Banks will now be able to offer loans at more attractive rates. Cheaper loans for home buyers will prompt a renewed interest in residential property purchase from end users and investors," Puri said, adding that cost of funding for real estate developers should also reduce marginally.
(With PTI and Reuters inputs)