The Finance Minister’s recent ‘advise’ to banks to pare lending rates seems to be having the desired effect.
After Bank of India and Canara Bank cut their base rates last week, Union Bank of India followed suit on Monday, reducing its base rate from 10.25 per cent to 10 per cent.
Base rate is the minimum benchmark lending rate below which banks cannot lend.
Banks determine their actual lending rates on loans and advances with reference to the Base Rate and by including such other customer-specific charges as considered appropriate.
The public sector bank said the revised interest rate is effective from today. In view of the reduction in base rate, the interest rate on home loans and car loans stands reduced to 10 per cent per annum and 10.45 per cent per annum respectively.
Public sector banks are cutting their base rates as Finance Minister P. Chidambaram, at a meeting with top bankers on July 3, ‘advised’ them to do so.
The minister reasoned that “In my view, reduction of the base rate will be a powerful booster, will be a powerful stimulus to credit growth.”
In view of the ‘advise’, Bank of India announced a cut in its base rate from 10.25 per cent to 10 per cent on July 3 itself.
Canara Bank followed the next day with a 30 basis points reduction in base rate from 10.25 per cent to 9.95 per cent for all loans/advances, that is, agriculture, MSME sector, retail, export credit with effect from July 8. The public sector bank also cut deposit rates by up to 50 basis points.
State Bank of India, the country’s largest bank, has refrained from cutting its base rate. At 9.70 per cent, the bank’s base rate is already the lowest in the industry.