The Telegraph
Thursday , January 31 , 2013
Since 1st March, 1999
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Rate cuts in dribs & drabs

Mumbai, Jan. 30: The SBI and HDFC Bank, two of the country’s largest banks, today responded to the Reserve Bank of India’s move to prune both the repo rate and the cash reserve ratio (CRR), but it will not result in any major benefit to their existing borrowers.

While the State Bank of India (SBI) reduced its base rate by a paltry five basis points to 9.70 per cent, HDFC Bank went for a selective lending rate cut when it reduced auto loan rates by up to 50 basis points.

Both these reductions come a day after the RBI brought down both the repo rate and CRR by 25 basis points in its third-quarter review of the monetary policy.

Soon after the monetary policy, the chiefs of both these banks had said that the cuts would lead to lower lending rates.

However, in what could disappoint its existing borrowers, the SBI brought down the base rate by only five basis points to 9.70 per cent with effect from February 4.

A reduction in the benchmark rate benefits all categories of borrowers (particularly the existing ones), but many banks have shown a reluctance to cut their base rates.

Instead, they have reduced interest rates in select pockets on various occasions, which benefits only the new borrowers.

The SBI’s base rate announcement came after HDFC Bank brought down the interest rates on car and commercial vehicle loans by 25 basis points and cut lending rates on two-wheelers by half a percentage point.

However, HDFC Bank did not change the base rate of 9.70 per cent. The bank did lower this benchmark rate last month, though the revision was only of 10 basis points.

With the latest round of revision from the SBI, the base rates of both the SBI and HDFC Bank are now the lowest in the market.

Sources at the private sector bank said the new lending rates would be effective from February 1. HDFC Bank, which is a major player in the retail auto loan market, currently offers car loans at rates between 10.75 per cent and 11.75 per cent.

After the rate cut, the range will be 10.5-11.5 per cent for repayment period between 36 and 60 months.

In two-wheeler loans where interest rates have been reduced by a much higher amount, the revised rate comes to between 19.25 per cent and 22.25 per cent.

Sources said the rate on loans for heavy commercial vehicles would be down by 0.25 per cent to 11 per cent, while loans for light commercial vehicles would get reduced to 13.75 per cent from 14 per cent.