SBI, ICICI and HDFC cut rates

Following RBI Governor Raghuram Rajan’s prodding on Tuesday, the country’s top three banks, the State Bank of India (SBI), ICICI Bank Ltd and HDFC Bank Ltd, lowered their interest rates on Wednesday.

While SBI and HDFC Bank cut their benchmark base rate by 15 basis points to 9.85 percent from 10 percent, the ICICI Bank reduced its base rate by 25 basis points to 9.75 percent.

What seemed to have goaded the banks into action was a statement in the monetary policy review on Tuesday that the central bank was planning to review the way banks calculate their benchmark base rate—in future it would be determined by the marginal cost of funds. The proposal, according to media reports, has shaken banks as it means that even if a portion of their funds were raised at a lower cost they would have to pass on the benefits of lower cost to their entire portfolio of borrowers who have floating rate loans.