HDFC Bank, the country’s second largest private bank, has decided to lower interest rates on retail loans by up to 200 basis points, while lending rates on corporate loans will be pared by 100-150 basis points.
While the rate cut on retail loans will be effective from Monday, those in the wholesale segment will be done progressively, a bank spokesperson said.
The sharpest cut will be seen in loans against property where the cut will be to the extent of 200 basis points. Car and commercial vehicle loans will be 125 basis points cheaper, while interest rate on two-wheeler loans will be reduced by 150 basis points. In case of personal loans, the bank has decided to lower rates by up to 100 basis points from the existing level of 17-17.50 per cent.
A bank executive said that a reduction in lending rates was a result of the cost of funds coming down. “While the impact of the decision to cut deposit rates last month will be seen over two-three months, we have decided to decrease the rates. It is a proactive measure and we hope that demand will pick up,” the executive said.
Auto companies and real estate players have cited high interest rates as one of the reasons for a drop in sales.
HDFC Bank had reduced its benchmark prime lending rate (BPLR) by 50 basis points.
Over the last four months, the Reserve Bank of India cut the cash reserve ratio (CRR) cut by 400 basis points, while the repo and the reverse repo rates were slashed by 350 basis points and 200 basis points respectively.
The reduction in CRR, or the proportion of deposits that banks set aside, has resulted in banks earning interest on funds, which earlier did not earn any income. The other rate cuts have helped banks lower the cost of deposits, by over 300 basis points in some cases, and they are now passing on the benefits to customers.
On Friday, HDFC, the bank’s parent and the largest mortgage player, announced a limited period offer through which home loan rates will be lowered by at least 50 basis points. Most public sector lenders have cut the BPLR by 150 basis points.