The country’s largest bank, State Bank of India (SBI), on Thursday took the lead in cutting interest rates on fixed deposits, paving the way for easing of lending rates — for home loans, car loans, corporate loans.
SBI’s move to reduce deposit rates by 25-50
basis points (100 basis points make 1 percentage point) — a day after chiefs of banks had a pre-monetary policy meeting with the Reserve Bank of India — is likely to make all other banks do the same.
IDBI Bank too reduced its deposit rates by a similar margin, along with a 50 basis point cut in its prime lending rate (PLR) — the rate at which banks lend to their best and safest customers — to 13 per cent, which is still higher than PLRs of the five biggest public-sector banks of 11.5-12.5
The deposit rate cuts would help banks reduce their cost of funds, a prerequisite for them to bring down their interest rates on loans to individuals to buy houses and automobiles and to companies for working capital and project funding.
SBI has reduced its 1,000-day deposit rate to 8.25 per cent from 8.50 per cent, effective April 13, while IDBI’s one to three year deposit will fetch 8.25 from April 15.
The executive director of a large public-sector bank, who did not want to be identified, said there would more deposit rate cuts in the next few months leading to lower interest rates on loans.
Rates could fall by another 200-250 basis points over the next three to four months, he said.
Banks have reduced their PLRs by up to 150 basis points in the past four months.