HDFC loans to get cheaper as bank cuts lending rate

New Delhi: Following SBI, country's second largest private sector lender HDFC Bank has reduced base rate or the minimum lending rate by 0.05 percent to 9.30 percent.  

The reduction in base rate will bring down interest rate on all loans.  

"Based on the quarterly review, the bank decided to lower the base rate" said HDFC Bank Treasurer Ashish Parthasarthy.  

The revised rate, one of the lowest in the industry, became effective on Monday.  

HDFC Bank had  last reduced its base rate to 9.35 percent in September this year.  

Base rate is the lowest lending rate below which banks do not lend to their customers.  

Asked about fixed deposit rate cut, Parthasarthy said, "It has been stable for past 3-4 weeks. Let's wait and see."With regard to credit growth, he said there is some traction in the economy and the bank has generally outperformed the market.  

Following the status quo by the Reserve Bank in bi-monthly monetary policy review earlier this month, HDFC Bank is the first large bank to cut base rate.  RBI left repo rate, at which it lends to the system, unchanged at 6.75 percent. 

The cash reserve ratio (CRR), or the amount of deposits banks park with RBI, was also retained at 4 percent.  

To improve transparency and ensure speedier monetary policy transmission, RBI issued uniform methodology for calculation of base rate on the basis of the marginal cost of funds.  

The new methodology issued earlier this month will ensure fair interest rates to borrowers as well as to banks.  

As per the guidelines effective April 1, banks will fix their lending rates as per their marginal cost of funding every month, which will be based on the rate offered on new deposits.