Right within a fortnight of finance minister Pranab Mukherjee meeting with leading bankers and urging them to cut rates to stir up the demand for credit and thereby the economic activity, India largest lender has announced a rate cut.

State Bank of India, has revised the benchmark prime lending rate by 50 bps to 11.75% from 12.25% effective from June 29, 2009. And, there would be other private sector banks joining in to cut rates.

Meanwhile, public sector lender Union Bank of India on Wednesday said it has also cut its benchmark prime lending rate by 25 basis points to 12% per annum. With this, the bank?s PLR would stand reduced to 12% and be effective from July 1, 2009

However, SBI officials have now mentioned that it will not be looking at reducing its BPLR still further. ?As our cost of fund has come down, we wanted to pass on the benefit to our customers?, SS Ranjan, deputy managing director and chief financial officer of the bank told FE. He claimed after the latest reduction, his bank?s BPLR has come in line with most of the other state-run banks, except for the Punjab National Bank, which was having its BPLR at 11%.

The bank has been granting loans to various segments, such as home loans, education loans, auto loans, produce market loans against warehouse receipts, loans against bill discounting and other loans to small & medium enterprises at concessionary rates.

Consistent with its practice of passing on the benefit of lower interest rates to its customers, the bank has now reduced its prime lending rate (PLR) to reduce the cost of credit to its customers and also to stimulate economic growth in the country, said the bank. This move is expected to bring down the cost of home loans and other floating rate products say experts.

Ranjan said that all those loans, that are directly linked to BPLR and which include loans being provided to corporate and mid-corporate groups will get reduced accordingly. However, the borrowers of those loans that the bank has been providing far less than the BPLR for quite sometime now, will continue to get loans at the earlier reduced rates, said Ranjan.

While the bank, in line with the industry, has freezed rate of interest on home loans to 8% for one year and SME for two years, it provides loans at 10% to the auto sector.

Earlier, another state-run lender, Union Bank of India slashed its BPLR by 25 bps to 11.75% from 12.00% per annum, effective July 1, 2009.

However, the second largest lender, ICICI Bank, has made it clear that it has already reduced its lending rates by 50 bps earlier this month and hence it had no plans as of now to reduce its any further. Meanwhile a clutch of public sector banks would also be moving in line with the leader to cut rate. M Garg, chairman and managing director of Corporation Bank said that his bank?s asset liability committee (ALCO) will be meeting on June 27 to take a call on its PLR.