MUMBAI: EMIs on home and auto loans are set to come down with the SBI and other banks cutting lending rates hours after the RBI on Tuesday slashing policy rate by 0.25 per cent for the third time this year.
The SBI cut its base rate by 15 basis points to 9.70 per cent, even as other major banks worked their numbers. Meanwhile, the Allahabad Bank cut its base rate by 30 bps to 9.95 per cent, Punjab and Sind Bank to 10 per cent from 10.25 per cent and Dena Bank to 10 per cent from 10.25 per cent.
The RBI justified its rate cut saying that with low domestic capacity utilisation, mixed indicators of recovery and subdued investment and credit growth, there is a case for cut in the policy rate.
Reaction to the policy and revised forecast of poor monsoon was swift. The Sensex plunged 660.61 points to 27,188.38, the rupee fell by 12 paise and yield on government bonds rose 7 bps to 7.71 bps. The Met Department downgraded its forecast to say rains could be deficient, a little after the RBI policy announcement, which had based its projections on 7 per cent rain deficit.
RBI Governor Raghuram Rajan, however, cautioned that uncertain monsoon may prevent future rate cuts. He also flagged concerns on likelihood of rise in food inflation and general inflation, and muted growth. “The biggest uncertainty is monsoon,” he said.
“With credit demand expected to perk up, we anticipate the cut will transmit through the banking system soon,” said Arundhati Bhattacharya, SBI chairman.