While having no impact on new borrowers, the cut in the base rate will soften the interest burden on those borrowers, whose loans are still linked to the base rate
State-owned lender IDBI Bank has cut its base rate by 10 basis points to 9.65%, effective August 1, the lender said in a statement on Thursday.The bank has also cut its benchmark prime lending rate (BPLR) from 14.25% to 14.15%, it said. Retail deposit rates have also been revised by 10-25 bps across three buckets – ’15-30 days’, ’31-45 days’ and ‘3 years to less than 5 years’.IDBI is now the second bank to slash its base rate this month, following Axis Bank, which announced a 10-bps cut in its base rate to 9.35% on July 20.
The base rates of the country’s largest bank by assets, State Bank of India (SBI), and the largest one by market capitalisation, HDFC Bank, are currently the lowest at 9.3%.While having no impact on new borrowers, the 10-bps reduction in the base rate will reduce the interest burden on those borrowers, whose loans are still linked to the base rate. This is because Reserve Bank of India (RBI) guidelines allow for continuation of the base rate as the reference even though the marginal cost of funds-based lending rate (MCLR) has become the reference from April 1, 2016.“Existing loans and credit limits linked to the base rate may continue till repayment or renewal, as the case may be. Existing borrowers will also have the option to move to the MCLR-linked loan at mutually-acceptable terms,” the RBI’s guidelines read.In order to facilitate monetary transmission and ensure that changes in lending rates are sensitive to movements in policy rates, the central bank introduced the MCLR as the benchmark for lending, instead of the base rate, from April 1.