After SBI, Axis Bank cuts base rate to 9.50%

After public sector banks, Axis Bank, India’s third largest private sector bank, revised its base rate to 9.50 per cent from 9.85 per cent p.a.

The new rate will be with effect from October 5, 2015. Accordingly, the effective rate applicable to various fund based credit and credit limits which are linked to the Bank’s Base Rate will reduce by 35 basis points (bps),” Axis Bank said in a statement.

After RBI cut key policy rate by an unexpected 50 basis points (bps) on Wednesday, State Bank of India (by 40 bps to 9.30 per cent), Bank of India (25 bps to 9.70 per cent), Andhra Bank (by 25 bps to 9.75 per cent) and State Bank of Travancore (by 20 bps to 9.95 per cent) cut their base rates. Other banks are likely to follow suit.

In early September, HDFC Bank, second largest private lender, had already cut its base rate by 35 bps to 9.35 per cent. At present, SBI has the lowest base rate of 9.30 per cent. ICICI Bank, the largest private bank, has a base rate of 9.7 per cent.

Base rate or the minimum lending rate is the benchmark lending rate to which all loans are linked.

A reduction in base rate leads to shrinking of margins for banks. However, in the past few months, deposit rates have come down by 75-100 bps. And therefore, since the cost of funds for banks have fallen, the impact on margins due to a reduction of base rate will be limited, analysts point out.

For SBI, the impact on margins is likely to be in the tune of 10-12 bps.

Since January this year, the banking regulator has lowered its repo rate by 125 basis points. The RBI has been constantly nudging banks to pass on the rate reduction to loan borrowers.

Bankers held a view that an increase in bad loans had been putting pressure on their margins with increasingly the interest-earning assets slipping into non-performing assets. This, in turn, has deterred banks from cutting lending rates.

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