This is the second base rate cut in the last three months. In April, HDFC Bank had cut its base rate by 15 basis points to bring it down to 9.85 per cent.
This move comes after the Reserve Bank of India (RBI) cut the key policy rate or the repo rate by 25 basis point earlier this month. After RBI’s rate cut, State Bank of India, the country’s largest lender, reduced its base rate by 15 bps, to 9.7 per cent. ICICI Bank, the largest private sector lender, which reduced its base rate in April by 25 bps to 9.75 per cent, has not yet taken a call after RBI’s June rate cut decision. Since January, RBI has cut the repo rate by a total of 75 basis points. The regulator had said they expected full transmission of the rate cuts by banks to end customers. Most banks have reduced base rate by 25-30 bps in response to RBI's rate cut of 75 bps.
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“We expect full transmission for the bank for the 50-basis point cut that has been done till this rate cut. Half of it has already happened and we expect full transmission,” said Michael Patra, executive director, RBI, in an analysts' conference call after the monetary policy.
“The base rate system works is a way that 95 per cent of the funding comes from deposits. So, a little delay based on the structure of the system is inevitable. Transmission is faster in some other countries because a large amount of funding there comes from the money and debt markets. That is not the case in India.”
Apart from SBI and HDFC Bank, Allahabad Bank, Federal Bank, Central Bank, IDBI and Punjab & Sind Bank, among others, have reduced base rate this month.