Bank of Baroda cut its base rate by 10 bps to 9.90% on Thursday. This is the second time in the current fiscal that the bank has lowered it base rate. So far, the public sector bank has reduced its rate by 35 bps in FY16.
On Wednesday, RBI fortnightly data showed non-food credit growth shrinking 3.16%, or Rs 2.13 lakh crore, between April 3 and June 26, an over-20-year-low growth of 9.48% y-o-y and down from Rs 67.62 lakh crore on April 3.
Outstanding non-food credit stood at Rs 65.47 lakh crore as of June 12.
Faced with a tepid credit growth, State Bank of India, ICICI Bank and HDFC Bank had also cut rates in the last few months and have the lowest base rates in the industry at 9.70%.
With credit growth not picking up, banks have been left with no option but to reduce lending rates. Although banks have been reducing deposit rates since October last year to facilitate a lending rate cut, the reduction in cost of funds reflects only after eight to nine months.
Lenders, however, say with a cut in base rate, all loans become cheaper immediately, affecting their margins. RBI data showed that between April 3 and June 26, deposits fell 1.26% or Rs 1.12 lakh crore to Rs 87.98 lakh crore.
SBI was the first bank to cut lending rate to 9.7% after the RBI had cut repo rate by 25 bps. HDFC Bank followed the suit in mid-June, reducing its base rate to 9.7%.