HDFC Bank Slashes Base Lending Rate to 9.35 per cent

Published on: Sep 2, 2015 @ 09:38

HDFC Bank,  India’s  second-largest  private  lender  on  Monday  slashed  its   base  lending  rate, the  benchmark to  which  all  other  lending  rates  are  linked, by  a  hefty  35  basis points  from 9.70  per  cent  to  9.35  per  cent. While  Canara  Bank  cut  its  base  rate  by  10 basis  points  to 9.9  per  cent,  effective  Thursday.

In  a  huge  relief  for  consumers,  the  new  lower  rates  from  HDFC Bank  are  effective  from Tuesday,  making bank  loans  cheaper  for  its  borrowers  and  will  help  drive  demand  for Home and  auto  loans.

With  the  cut,  HDFC Bank  has  reduced  its  base  rate  by  65  basis  points  since  April,  which is much  lower than  those  of  its  competitors.  It  had  cut  this  rate  by  15  basis  points  twice, in April  and  June.  HDFC Bank had  on  April  17  cut  its  base  rate  by  0.15  per  cent  to  9.85 per cent  and  again  on  June  15  by  another  15 basis  points  to  9.70  basis  points.

This  move  of  HDFC Bank  will  force  other  major  lenders  to  cut  rates,  and  thus  make  Home and  other  loans cheaper  for  consumers. Other  banks  may  also  follow  suit  due  to  competitive pressure. However,  It  will  be difficult  for  other  banks  to  match  HDFC Bank’s  base  rate. This is  particularly  true  of  public  sector  banks,  as their  margins  are  already  under  pressure, owing to  an  increase  in  non-performing  loans  and  higher  cost  of funds.

HDFC Bank  competes  with  State  Bank  of  India  and  ICICI  Bank,  both  of  which  offer  base rate  at  9.70  per cent  currently.  While  Axis  bank’s  base  rate  is  at  9.85  per  cent  and  Bank of Baroda’s  at  9.90  per  cent  at present.

From  the  beginning  of  this  year,  RBI  has  cut  its  repo  rate  at  which  it  lends  to  banks,  by 0.75  per  cent  to 7.25  per  cent,  while  most  banks  have  been  behind  the  curve  in  reducing rates  and  have  only  reduced  their base  rates  by  0.25-0.50  per  cent.

At  the  last  monetary  policy  review  on  August  4,  RBI  Governor  Raghuram  Rajan  had  rued that  banks  have not  passed  on  the  entire  benefit  of  its  75  bps  rate  cuts  since  January  15 and  had  reduced  their  rates  by only  30  basis  points.  Rajan  had  even  linked  next  easing  to banks  cutting  their  rates  more  aggressively.

The  revised  rates  of  HDFC Bank  are  applicable  from  Tuesday,  after  which  all  loans  linked to  the  base  rate will  become  cheaper.  The  reduction  in  rates  will  help  drive  demand  for Home  and  auto  loans,  analysts say.

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