Union Bank of India has reduced its Base Rate by 10 basis points from 10.75 per cent to 10.65 per cent, with immediate effect. This will lead to reduction in rates of all loans linked to Base Rate.

The bank is the first to reduce the Base Rate in the last one year or so, since the Reserve Bank of India was on a rate hiking spree to tackle inflation.

While going ahead there could be a tendency to reduce rates, an across-the-board reduction by banks would happen only if the RBI cuts repo and reverse rates, said Mr Madan Sabhnavis, Chief Economist, CARE Ratings.

The calculation of Base Rate depends on cost of funds and provisions for non- performing asset assets and capital adequacy ratio. These conditions may have turned favourable for Union Bank, making it possible to reduce the Base Rate and pass on the benefit to borrowers.

“Deposit cost, which is the biggest component of cost of funds, is rising for most banks. Besides many banks are also increasing savings bank rate. So, it is unlikely that we will see an across the board reduction, immediately. In case of Union Bank the composition of deposits may have changed and allowed them to reduce rates,’’ Mr Sabhnavis said.

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