Flush with higher deposits following demonetisation, the country's largest lender State Bank of India (SBI) slashed its benchmark lending rate by 0.9 per cent across various maturities.

The bank has reduced marginal cost of funds based lending rate (MCLR) from 8.90 per cent to 8 per cent for 1-year tenure, SBI said in a statement, reports PTI.

The MCLR on overnight borrowings has been reduced to 7.75 per cent from 8.65 per cent, while the lending rate for three-year tenure has been cut from 9.05 per cent to 8.15 per cent. Similarly, the bank reduced the lending rate by similar percentage point for tenures including one month, three months, six months and two years.

"With this, the bank has reduced its benchmark rate by 2 per cent from January, 2015," it said. Banks have moved to MCLR as their new benchmark lending rate from June, replacing the base rate system for new borrowers.

It is calculated on the marginal cost of borrowing and return on net worth for banks. It was introduced by RBI to ensure fair interest rates to borrowers as well as banks.

Last week SBI's subsidiary State Bank of Travancore also cut rates by upto 0.3 per cent, while IDBI Bank cut its lending rate by upto 0.6 per cent across various loan tenors. Read More: State Bank Of Travancore Cuts Lending Rate By Up To 0.3%