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.
Ajay Verma, founder, and writer of The Housing World, a real estate and mortgage news website. He has over fifteen years of rich experience in the above-mentioned industries.