Shares of State Bank of India jumped as much as 4.7% as SBI's proposal to cut marginal cost-based lending rates across maturities by 5 basis points came into effect from today.

Shares of India's largest lender ended trading higher by 4.58 per cent at Rs 319.80 on the BSE. On the NSE, the stock zoomed 4.64 per cent to Rs 320.

The rate cut will be SBI's first lending rate cut in 10 months. SBI, which accounts for more than a fifth of India's banking assets, will lower the 1-year MCLR to 7.95 per cent from 8 per cent, according to a notification on Tuesday.

The Reserve Bank of India had last year unveiled the MCLR, which sought to remove much of the discretion commercial banks have to set lending rates. But to its frustration, the pace of bank lending rate cuts has lagged the reduction in policy rates, which fell by 200 basis points since January 2015.

The RBI is keen on banks lowering the lending rates further to accelerate credit growth and private investment in an economy growing at its slowest in more than three years. Bank loans last financial year grew at their slowest pace in more than six decades.

The last rate cut was in January this year when SBI made a deep 90 basis points cut in its marginal cost of funds based lending rate (MCLR) across all maturities. Following this cut, home, auto, personal and other loans will become cheaper.

With this cut, the one-year MCLR was at 8 per cent against 8.9 per cent. The new rates are effective January 1, 2017.

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