As a result of the 50bps cut in the Repo rate by RBI on Tuesday-17th Apr, to promote the growth rate and to tackle inflation; the banks have started to slash their base rates by 10-25 base points. The Base Rate is the minimum interest rate which can be offered by the bank. Now, the rate cut is the function of the cost of deposits. The cost of the past deposits and the cost of the future deposits with the bank need to be considered for cutting both the lending rate and the deposit rate (savings and current account interest return rate)

In its 2012-13 annual monetary policy held on April 17, the Reserve Bank of India decreased its policy rate or repo rate by 50 bps. Repo is the rate at which banks borrow money from RBI. Currently, it stands at 8%. Initially, banks indicated no immediate rate cut following RBI policy action. Later, lenders started reducing interest rates in a bid to transmit the regulator’s policy action faster than expected
As per the statistics provided by the banks, below is new Base Rate declared by banks

Banks Latest cut in base rate (basis points) Base rate (%)
ICICI Bank 25 9.75
Punjab National Bank 25 10.50
Bank of Maharashtra 10 10.50
IDBI Bank 25 10.50
Indian Overseas Bank Not yet 10.75
State Bank of India Not yet 10
Corporation Bank Not yet 10.65
Central Bank of India Not yet 10.75

As ICICI Bank being the top in this list, Chanda Kochhar, managing director and chief executive officer of ICICI Bank said in an interview to CNBC TV18, the biggest reason for doing the base rate cut was to actually do an effective transmission of this reduction in interest rates and to pass on the benefits to the existing customers. She doesn’t see pressure on profits due to the base rate cut. She lauded the Reserve Bank of India and said the central bank is doing a commendable job in balancing growth & inflation.

MD Mallya, chairman and managing director, Bank of Baroda told CNBC-TV18, they would be taking a decision on lending rate cut soon (by 21st April) . However, the quantum of rate cut will depend on the overall liquidity position and cost of the funds.

Regards,

Siddhesh Sardesai
IW Committee
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