Other large lenders both from the public and private banking space are likely to follow SBI which reduced base rates by 30 bps or 0.3% to benefit over 8million customer base. The move is likely to come on the heels of intensifying competition.
The new lowered rate shall benefit existing customer base of the bank as the lending rate is tied to the base rate and any cut in base rate shall be directly passed on to banks' borrowers. However lending rates for new borrowers shall not be determined on the basis of lowered base rate.
And as SBI leads the banking space, other players take cues from it and is said to pass on the benefit to their borrowers in due course. After the rate cut, base rate of state-run SBI stands at 8.65% while it is pegged at 8.85% for both HDFC and ICICI Bank.
1-Year MCLR or maginal cost of lending rate for SBI is 8.1% while for ICICI and HDFC Bank it is 8.2% and 8.4% respectively.
The lowered base rate is part of the measure to pass on reduction in key policy rates effected in the recent past.