Banks' median base lending rate down 0.05% after RBI rate cut

Banks' median base lending rate declined by 0.05 per cent to 10.20 per cent in February following reduction in key interest rate by RBI to 7.75 per cent in January, Parliament was informed today.
"Following the reduction in the policy rate by 25 basis points (0.25 per cent) to 7.75 per cent on January 15, the median base (lending) rate of banks has declined by 5 bps (basis points) to 10.20 per cent up to February 23," MoS Finance Jayant Sinha said in a written reply in the Lok Sabha.
Eight banks, including two public sector, one private sector and five foreign banks, have reduced their base rates in the range of 25-50 bps (0.25-0.5 per cent) so far, Sinha said.

In a surprise move, the Reserve Bank reduced its key policy rate by 0.25 per cent to 7.75 per cent on January 15.
RBI had introduced the base rate system -- the minimum below which banks cannot lend -- in July 1, 2010 that deregulated all rupee lending rates, including advances up to Rs 2 lakh.
Hence, the interest rates on loans by banks are not determined with the approval of their boards.

In a deregulated environment, banks have the complete freedom in deciding their spread, risk premia, term premia, and other customer specific charges in appropriation with their loans and advances based on their commercial judgement.

Before the introduction of base rate system, banks had the Benchmark Prime Lending Rate (BPLR) system in which they could lend below BPLR as well.
However, BPLR which was introduced in 2003, was junked as it fell short of its objective of bringing transparency to lending rates and it was also difficult to assess the transmission of policy rates of RBI to lending rates of banks.