SBI to cut lending rate by 50 bps in two days

State Bank of India, the country's largest lender, today said that it will reduce its benchmark lending rate by at least 50 basis points in a day or two, a move that will make home, auto and personal loans cheaper.

"Our Asset and Liability Committee (ALCO) should be meeting tomorrow and a decision to cut the prime lending rate (PLR) by at least 50 basis points would be taken," SBI Chairman O P Bhatt said here after the meeting of PSU bankers with Finance Minister P Chidambaram.

The public announcement is likely to be made a day after, he said, adding the proposed rate cuts would be effective beginning next week.

The bank last increased its PLR by 100 basis points to 13.75 per cent on August 12.

Besides, he said the deposits rates would also be reduced in the next couple of weeks.

Bhatt said that the RBI has infused a lot of liquidity into the system by reducing the cash reserve ratio by 350 basis points, the statutory liquidity ratio by 100 basis points and the repo rate by 150 basis points.

"So how can interest rates stay at this level? And there is no pressure to cut," he said, adding, "the cost of funds has gone down, so it is the right time to pass on the benefits to customers."

The RBI, since October, has reduced the cash reserve ratio (percentage of deposits that banks keep with the central bank) from 9 per cent to 5.5 per cent and the short-term lending (repo) rate, at which banks borrow from the RBI, from 9 per cent to 7.5 per cent.

Bhatt earlier during the day said the interest rates have peaked and are expected to moderate in the coming days.

Among the banks that have announced reduction in the benchmark prime lending rate (PLR) by 50 basis points include the country's third largest lender, Punjab National Bank, IDBI Bank and Union Bank of India.

Reduction in the PLR is significant as interest rates on all loans given by a bank, fixed or floating, are linked to benchmark rates. Interest rates on all individual loans like car, home or personal loans, move up and down along with increase or decrease in the PLR.

The largest private sector lender, ICICI Bank, too has said it would review the lending rates after watching the impact of the liquidity injection steps taken by the RBI last week.