Even as public sector banks gear up to announce further rate cuts by next week, the country?s second-largest lender, ICICI Bank, on Thursday announced a 0.50% reduction in both retail and corporate rates. All existing floating-rate retail loan customers will benefit from the reduction. This is the third time the bank has pared its rates in the last six months. Explaining the decision, a bank spokesperson said, ?Our cost of funds has fallen.?

ICICI Bank?s new floating reference rate is applicable to all floating-rate retail loans (including home loans) and will come into effect from Friday. The revised FRR stands at 12.75% pa, against 13.25% pa at present. The bank also announced a 0.50% reduction in its benchmark advance rate to 15.75% pa.

However, ICICI Bank has ruled out any more rate cuts in the immediate future. ?We would not follow public sector banks in cutting our rates further,? the spokesperson said. ICICI Bank MD & CEO Chanda Kochhar had earlier said the bank would not expand its balance sheet during the current fiscal and would, instead, restructure its asset liability.

Meanwhile, in the run-up to their meeting with finance minister Pranab Mukherjee, which is slated for June 10, state-owned banks have started preparing for yet another round of rate cuts. OP Bhatt, chairman of the country?s largest lender, State Bank of India, on Friday said his bank has the headroom for a 25-basis point rate reduction on deposits as well as lending. However, Bhatt did not set a timeframe for such cuts.

Bhatt also said given the large amount of liquidity, SBI can cut deposit rates, which could lead to cuts in lending rates. On ICICI Bank?s move, Bhatt said its PLR is still very high. ?ICICI Bank may have cut rates far less than what other banks may have done. Any comparison between PSBs and ICICI Bank on rate cuts would be a wrong,? he added.

Bank of Baroda and Indian Overseas Bank have also indicated that they were in a position to cut rates. Talking to the media on the sidelines of signing a joint venture agreement to set up a banking subsidiary in Malaysia, IOB CMD SA Bhat said the cost of deposits was already on a downward trend.

Bhat said his bank had so far sanctioned Rs 10,000 crore, but disbursement was not taking place at the same level. ?While PLR has come down by 2%, deposit rates were also slashed by 1.25%, so I have been able to save 75 bps on the deposit rate side,? said Bhat.

Bank of Baroda CMD MD Mallya said his bank was likely to achieve topline growth of 25% year-on-year this fiscal. He expects deposits to grow by 25%, and credit by 25-26%. ?We have already reduced our prime lending rate two to three times in the recent past and, hence, our net interest margin is under pressure. Still, we are targeting an NIM of 2.8-3% by the fiscal-end,? said Mallya.