Mumbai :State Bank of India, the country’s largest lender, reduced interest rates on loans linked to the base rate by 30 basis points.
With this reduction, SBI’s base rate now stands at 8.65%.
The move is likely to benefit a large number of old borrowers, said a senior SBI official.
Since April 2016, banks moved to the marginal cost of fund-based lending rate (MCLR) system as the base rate regime was found to be rigid and weak for rate transmission.
Though some borrowers have migrated to MCLR, large number of borrowers, especially in the retail segment, are still on base rate, according to banking analysts.
Currently, SBI’s MCLR is in the range of 7.70-8.10%.
SBI’s move to cut the base rate comes at a when a committee set up by the Reserve Bank of India (RBI) in October recommended linking bank lending rates to a market benchmark, in a bid to hasten monetary policy transmission as well as improve transparency in rate setting by lenders.
The panel—headed by Janak Raj, principal adviser, monetary policy department—recommended that all floating rate loans advanced from April could be referenced to one of three external benchmarks—risk-free curve involving rates on treasury bills, or certificate of deposits rates or the central bank’s policy repo rate.
The panel pulled up banks for “arbitrariness” in calculating the base rate and marginal cost of funds-linked lending rates (MCLR), two existing benchmarks to which retail lending rates such as car loan and home loan rates are fixed.
The spreads charged over these internal benchmarks “has undermined the integrity of the interest rate setting process”, it said.