In a huge relief for consumers, private lender HDFC Bank cut its base rate, or minimum lending rate, from 9.70 per cent to 9.35 per cent on Monday. HDFC Bank is the country's second largest private sector bank by assets.
The surprise rate cut is likely to force other major lenders into reducing rates, analysts say. HDFC Bank competes with ICICI Bank and State Bank of India, both of which give loans at 9.7 per cent currently.
The revised rates are applicable from Tuesday, after which all loans linked to the base rate will become cheaper. The reduction in rates will help drive demand for auto and home loans, analysts say.
State-run Canara Bank has also cut its base rate by 10 basis points to 9.90 per cent from 10 per cent, effective from September 3, 2015.
HDFC Bank's latest rate cut comes after continuous prodding by Reserve Bank Governor Raghuram Rajan, who has been nudging banks to cut their lending rates.
The central bank has cut its repo rate by a combined 0.75 per cent or 75 basis points this year, but commercial banks have been behind the curve in reducing rates. The lack of transmission in interest rates has rendered Dr Rajan's repo cuts useless, analysts say.
Analysts expect the central bank to cut its repo rate for a fourth time on September 29. (With Agency Inputs)
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
