Union Bank of India and Punjab National Bank (PNB) reduced their base rates by 25 basis points (bps) on Thursday to 10.25%, to transmit the benefit of the wider policy rate cut by the Reserve Bank of India (RBI) to their customers.
Both the banks' base rates were among the highest in the industry. After this, the base rate of Bank of Baroda (BoB), Bank of India (BoI), Indian Overseas Bank and Canara Bank, of 10.5%, is the highest among the top 10 banks in the country. Both BoB and BoI’s asset liability committee (ALCO) are expected to meet within a few days to take a decision on cutting lending rates.
The base rate is the rate of interest below which banks cannot lend to its customers. A cut in the base rate implies that all borrowers, both existing and new, will benefit from lower rates. Borrowers pay interest a few percentage points higher than the bank’s base rate.
The move was prompted by the RBI as it cut the policy rate and cash reserve ratio (CRR) by 25 bps each on Tuesday. The new rates of Union Bank and PNB will be effective from February 9, 2012, the banks said. The move comes a day after the country's largest lender State Bank of India (SBI) lowered its base rate by 5 bps to 9.7%, which now matches the base rate of HDFC Bank.
Immediately after RBI cut policy rate on Tuesday, IDBI Bank and RBS had cut base rate by 25 bps to 10.25% and 75 bps to 9%, respectively. IDBI also reduced its benchmark prime lending rate (BPLR) by 25 basis points, making home loan cheaper for those who are still stuck on the BPLR system for their loan.