State Bank of India is cutting its loan rates for small and medium enterprises by 1.5% to 2.0% points, Chairman Pratip Chaudhuri said, adding that the move would not squeeze margins at India's largest lender.

India's banks, saddled with high-cost long-term deposits, narrow profit margins and the threat from a rising volume of bad debts, are hard-pressed to follow the Reserve Bank of India's 50 basis point cut in lending rates last week.