Banks reduce loan interest rates

State Bank of India has brought down its prime lending rate by 25 basis points. The country’s largest bank has brought down rates by the same level as HDFC earlier this month. Bank of India has also lowered rates on home loans and other personal loans.
The reduction in prime lending rate, known as SBI Advance Rate, will bring down interest cost for existing home loan borrowers as all variable rate loans are linked to SBIAR. Until the rate reduction SBI was charging, 2.75% below SBIAR for 5-year floating loans, 2.5% below SBIAR for 10-15 year floating rate loans and 2.25% below SBAR for 15-20 year loans. Loans above Rs 20 lakh were 25 basis points higher.

A few days ago Bank of India has reduced home and other personal loan rates without touching its prime lending rate. A BoI official of the bank said that for new borrowers the rate reduction will range from 25 basis points to 250 basis points depending on the nature of the loan and the tenure.

Last week, a host of banks including Canara Bank and Allahabad Bank announced rate reduction. Chennai-based Indian Overseas Bank said that the bank’s asset liability committee would meet on Friday to review its lending rates. Sources said that the bank was likely to announce a 25 basis point reduction in lending rates on the lines of the cut by SBI and HDFC.

The RBI in its monetary policy hinted that banks were doing very well because they had not passed on a reduction in their costs to borrowers. The finance minister has also been asking banks to ensure that they pass on cost reductions.

As a result of the reduction in the interest rates, the yields on G-Secs which are are an indicator of interest rate movement has decreased thus perking up the bond prices.