Banks cut interest rates; loans to turn cheaper

A number of banks including state-run PNB, IDBI Bank and Bank of Baroda, as also private sector lender Axis Bank today lowered lending rates -- a day after RBI surprised with a larger-than-expected policy rate cut and prodded banks to pass on the benefits.
However, the reduction in lending rates of the banks is so far less than RBI's 0.5 per cent cut, with state-run SBI and Punjab National Bank (PNB) leading the charts with cuts of 0.4 per cent each in its base rate.
The base rate is the minimum rate of interest at which a bank lends to its borrowers.

Axis Bank cut its base rate by 0.35 per cent, while the reduction by IDBI Bank was 0.25 per cent.
Country's largest lender State Bank of India, Andhra Bank and Bank of India were among the first to cut base rate yesterday in the range of 0.20-0.40 per cent in response to RBI's repo rate reduction to 6.75 per cent.
While the base rate cut so far has come mostly from public sector lenders, private sector players, except Axis Bank, are expected to follow suit soon.

Those announcing the rate cuts today included Bank of Baroda (by 0.25 per cent), Oriental Bank of Commerce (0.20 per cent) and IDBI Bank (0.25 per cent).

PNB said its base rate has been cut by 40 basis points to 9.60 per cent from October 1.
Soon after the policy rate cut, RBI Governor Raghuram Rajan, as also Finance Minister Arun Jaitley, had yesterday expressed hope that banks will transmit the benefit to borrowers to boost investments and the economy.
Bankers have also been almost unanimous in saying that borrowers should expect cut in lending rates following the RBI move.