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Jun 16, 2012, 10.50 AM IST
India's largest public sector lender cuts lending rates across various categories by 50-350 basis points today.
India’s largest lender State Bank of India on Friday slashed lending rates across various categories by a wide range 50-350 basis points. The rate cut was originally applicable from June 01. However, the bank's base rate remains unchaged at 10%.
The revision in rates will primarily bring down cost of money in the small and medium enterprise (SME) sector and agriculture sector. But it is not applicable to personal loan segements (home, auto and others) as well as some select export credit segments.
A loan is priced over base rate with a spread. This reduction will bring down the spread meaning that the ultimate rate of interest too will fall. For example, if any loan is given at 5% higher than the base rate, the rate of interest comes to 15% (SBI base rate at 10%). Due to a drop in spread, say by 350 bps, the same loan will be available at 11.50% (10% + 1.50%).
According to the SBI management, the rate cut is likely to expand its loan book by Rs 15,000 crore. So far in April-June quarter, the lender has lent Rs 8000 crore, of which Rs 2,500 to large corporates. At the same time, it has mobilised Rs 26,000 crore deposits.
The rate cut is likely to impact the interest margin by 10-15 basis points. However, the SBI is confident of maintaining a net interest margin of 3.75%.
The lender's decision to cut rates ahead of RBI mid-quarter monetary policy assumed importance, especially when the rate was made applicable from June 1. Following the Finance Minister's meeting with chiefs of state-owned banks recently, according to some experts, SBI may have gone for rate rates.
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