State-owned IDBI Bank on Wednesday announced a cut of 25 basis points in its base rate to 10.5% a day after Reserve Bank of India (RBI) reduced the repo rate by 50 basis points. The bank also lowered the benchmark prime lending rate by 25 basis points to 15% simultaneously

The bank also announced cut in fixed deposit rates anywhere between 10 to 50 bps across various buckets. The first bank to pare lending rates after the policy announcement, the bank said it hopes to see higher loan growth in the infrastructure space. The bank has taken this step, keeping in view the recent policy measures announced by RBI and the emerging market conditions expected to arise out of the transmission of these monetary measures, it said.

?We didn?t cut rates when the RBI announced CRR reduction. We wanted the transmission to take place and today?s cut is more of an incentive for companies because most projects are stalled for various other factors as well,? said IDBI Bank executive director RK Bansal.

Most banks believe that deposit rates need to come off before they can drop their base rates. Post the RBI policy announcement on Tuesday, bankers said it would be a challenge to grow deposits given the superior returns that competing products provided. Pratip Chaudhuri, chairman, State Bank of India (SBI) said, ?Other small savings products offer tax-breaks so it is hard to compete with them.? Chanda Kochhar, CEO and MD, ICICI Bank added, ?We should see a fall in lending rates but only after deposit rates come off. Banks are facing a challenge in raising deposits and a part of the challenge is in the pricing.?

The bank grew credit and deposits by about 15-16% and 14-15% respectively for 2011-12.