State-owned Bank of Baroda (BoB) on Tuesday cut its benchmark lending rate by 10 basis points, making home, auto and other loans cheaper for its customers, though the reduction is much less than the policy rate cut by the RBI.

The BoB thus joins other banks such as Punjab National Bank, Union Bank of India, Allahabad Bank and Kotak Mahindra Bank, who have brought down their marginal cost of funds-based lending rate (MCLR) by 5-10 basis points.

The country’s largest lender — the SBI — had also announced a five-basis-point cut in home loan rates, which will make them cheaper for new borrowers. However, the SBI is yet to announce a reduction in its MCLR.

The cuts by these banks come after the RBI surprised the Street last month by reducing the policy repo rate by 25 basis points to 6.25 per cent because of benign inflation. However, banks have been dragging their feet to pass on this cut to their borrowers and have cited reasons such as high credit costs.

This culminated in RBI governor Shaktikanta Das holding a meeting with various bankers last month where monetary transmission was discussed. At the meeting, the RBI governor reportedly told the lenders that they should bring down their lending rates after the reduction in the policy rate so that consumers benefit.

One-year loans

The BoB on Tuesday said it has reduced the lending rate by 10 basis points across all tenors up to one year. This will benefit both existing and new borrowers of the bank. It said that the new rates were effective from March 7.

MCLR (against which home and other loans are benchmarked) for overnight and one-month tenors would be 8.25 per cent and 8.30 per cent, respectively, it said.

Similarly, MCLR for one-year tenor was brought down to 8.65 per cent from 8.75 per cent. Most of the retail loans are benchmarked against one-year MCLR.

Recently, the Union Bank of India reduced its MCLR by 10 basis points across all tenors. With inflation expected to remain soft and economic growth falling to 6.6 per cent in the third quarter of this fiscal, observers expect the RBI to cut the repo rate again in its April policy meet.