Bank of India (BoI) has cut its base rate by 25 basis points to 9.95% effective May 4, as per a Bombay Stock Exchange (BSE) filing of the bank. The lender becomes the latest in a series of rate cuts post the Reserve Bank of India governor, Raghuram Rajan, strongly expressing his concerns on rate cut transmission by banks. Base rate is the lowest rate below which the banks cannot lend.
Since the beginning of 2015, the RBI has cut the repo rate twice by 25 bps each time, bringing the rate down to 7.5%. However, banks were seen as reluctant to reduce rates.
Only United Bank and Union Bank of India had cut their base rates by 25 basis points each early this year. Banks had been shying away from rate cuts saying they would wait for the credit demand to pick-up before deciding to lower their lending rates.
Post the RBI’s strong expression of discontent at rate cut transmissions in the April 7 monetary policy where the central bank maintained status quo on key rates, all lenders started reducing their base rates. The story commenced with SBI and HDFC Bank trimming their base rates by 15 basis points each to 9.85%. ICICI bank had followed suit by lowering its base rate by 25 bps and currently has the lowest rate at 9.75% while Axis Bank cut its base rate by 20 bps to 9.95%. Kotak Mahindra Bank had trimmed its rate by 15 basis points to 9.85% and State Bank of Mysore had cut its rate by 25 bps to 10%.
Bankers are still of the view that credit off-take will take some quarters to see any significant pick-up. Moreover, cheaper options of raising funds like bond markets has also hurt their corporate credit growth. Many small public sector banks are yet to cut their base rates citing lack of credit growth and higher cost of funds.