The Reserve Bank of India (RBI) on Sep 29, 2015 reduced repo and reverse repo rate by 50 basis points (bps), which wass higher than expected 25 basis points cut.
The revised repo and reverse repo rate stood at 6.75% and 5.75% respectively compared with 7.25% and 6.25% earlier. The central bank had kept cash reserve ratio (CRR) and statutory liquidity ratio (SLR) unchanged at 4% and 21.5% respectively.
The RBI Governor Raghuram Rajan said on Tuesday the focus of monetary action for the near term will shift to working with the Government to ensure that impediments to banks passing on the bulk of the cumulative 125 basis points cut in the policy rate are removed.
Supporting the RBI Governor's decision to jointly work with the government to enable banks to transmit the rate cut, the Finance Minister, Arun Jaitley said the government hopes to see transmission of RBI rate cut by the banks.
Immediately responding to the rate cut, banks responded positively in slashing their base rate. India's leading public sector bank, State Bank of India had slashed base rate by 40bps to 9.30% with effect from Oct. 5, 2015.
The SBI Chairman said, "Margins may be impacted by 10-11 bps due to base rate cut, but however we do not see a lasting impact on margins. Fall in cost of funds on monthly basis quite good."
Even, Punjab National Bank (PNB) cut its base rate by 40 bps to 9.60%, effective from Oct 1, 2015.
UCO Bank (UCO), a public sector lender, reduced its base rate by 25 basis point to 9.70% with effect from Oct. 05, 2015.
Axis Bank, private sector bank in India, reduced its base rate by 35 basis points to 9.50% with effect from Oct. 05, 2015.
Yes Bank, India's largest private sector bank has cut its base rate by 25 basis points (bps) from 10.50% p.a. to 10.25% p.a.
Oriental Bank of Commerce (OBC) slashed its base rate by 20bps to 9.70%, with effect from September 30.
Kotak Mahindra Bank has reduced its base rate from current level of 9.75% p.a. to 9.50% p.a. with effect from Oct. 05, 2015.
Other PSU banks such as Bank of India and Andhra Bank had also reduced their base rates by 25 bps to 9.70% and 9.75%, respectively.
Also, IDBI Bank, one the leading public sector banks, reduced its base rate by 25 bps to 9.75% with effect from Oct. 05, 2015. Bank of Baroda cut its minimum lending rates by 25 bps to 9.65%.
ICICI Bank has reduced interest rates on some bulk deposits of above Rs 1 crore by up to 25 basis points. ICICI Bank will review its lending rate in the next couple of days.
The RBI Governor said that the further rate cuts will depend on how much benefit the banks transmit. The RBI has collectively reduced 125 bps in key interest rates, but so far the banks have succeeded in transmitting approx 30 basis points.
Arun Jaitley said, the government will review the small savings rates, which remain sticky at 8.4-8.5%, limiting banks' ability to lower deposit rates and slowing down the transmission of Reserve Bank of India's softer monetary policy decisions.
