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HDFC Bank cuts base rate by 10 bps to 9.7%

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The new year, it seems, promises to bring some good news for retail borrowers.

HDFC Bank, the country’s second-largest private sector lender, has decided to reduce its base rate by 10 basis points (bps) to 9.7 per cent from Tuesday. The base rate is the benchmark to which all loan rates are linked. With this cut, has the lowest base rate among major lenders, lower than that of State Bank of India (SBI, at 9.75 per cent) and (9.75 per cent).

HDFC Bank will also reduce its benchmark prime lending rate, the erstwhile loan reference rate, by a similar magnitude to 18.2 per cent.

The rate cut will make, among others, automobile loans cheaper for its customers, as the lender is a major player in the vehicle loan market. HDFC Bank last reduced benchmark lending rates on June 30 this year by 20 bps.

BASE RATE OF BANKS              (in %)
HDFC Bank  9.70*
State Bank of India 9.75
ICICI Bank  9.75
Bank of Baroda 10.50
Punjab National Bank 10.50
*From January 1, 2013         Source: Banks

SBI, the country’s largest lender, has been aggressive in recent times in pushing its retail loans, such as those for vehicles and homes. It offers 10.50 per cent for all four-wheeler loans. SBI, however, is not looking to tinker with the base rate at present, Pratip Chaudhuri, chairman of told Business Standard.

ICICI Bank, the country’s largest private sector lender, remained non-committal when asked about a rate action.

“ICICI Bank was one of the first banks to reduce the base rate. Currently, the bank’s base rate is pegged at 9.75 per cent, which is one of the lowest in the industry,” a spokesperson said.

Almost all lenders are focusing on retail loans, as there is poor demand from the corporate sector.

Auto loans have been growing better than overall bank credit growth, which grew by 22.2 per cent year-on-year till the end of October, while gross bank credit growth was 15.9 per cent during the period. In the corresponding last year, auto loan growth was 18 per cent, while overall credit growth was 18.7 per cent.

HDFC Bank is the first large lender to reduce the benchmark rate before the Reserve Bank of India’s third quarter monetary policy review scheduled for January 29. The central bank is widely expected to reduce interest rates in the review to boost economic growth, which has slowed significantly this financial year.

HDFC Bank also revised fixed deposit rates on select maturities from December 15.

Earlier this week, it had raised about Rs 1,400 crore from bonds to fund business growth. The bank has allotted lower Tier-II bonds for an amount aggregating Rs 1,405 crore.

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