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Banks (Finance)

RBI Cuts Repo Rate by 0.5%, Prompting Banks to Slash Rates

Strategic Insights

— 2 min read

With the Reserve Bank of India (RBI) cutting the repo rate by 0.50% to 6.75% in a bid to kick-start the economy, banks have begun to react by slashing their base rates, a move that is expected to benefit consumers with cheaper home and auto loans. The country's largest lender, State Bank of India (SBI), was the first to respond by cutting its base rate by 0.40% to 9.3%, effective October 5, 2015, making it the lowest in the industry. Other banks, including ICICI Bank and HDFC, are expected to follow suit, with HDFC Bank already reducing its base rate by 0.35% to 9.35% a month ago.

Key Takeaways:

  • The RBI cut the repo rate by 0.50% to 6.75% to stimulate the economy, prompting banks to slash their base rates.
  • SBI was the first to respond, cutting its base rate by 0.40% to 9.3%, effective October 5, 2015.
  • Other banks, including ICICI Bank and HDFC Bank, are expected to follow suit, with HDFC Bank already reducing its base rate by 0.35% to 9.35% a month ago.
  • The rate cuts are expected to benefit consumers with cheaper home and auto loans, with an estimated reduction of Rs 3,500 in EMIs and Rs 8,00,000 in total interest outflow for a Rs 1 crore loan.
  • SBI chairman Arundhati Bhattacharya expressed optimism that the rate cut would lead to a "slew of positive surprises," including a benign inflation trajectory and continued accommodative policy.
  • RBI governor Raghuram Rajan stated during a media teleconference that some monetary policy transmission was expected to take place soon, with more to follow over time.
  • Rating agency Crisil reported that aggregate bank credit growth declined to 9.11% year-on-year as of September 4, 2015, due to poor monsoon, muted investments, and rising risk aversion.

Statistics:

  • RBI cut the repo rate by 0.50% to 6.75%.
  • SBI cut its base rate by 0.40% to 9.3% on October 5, 2015.
  • HDFC Bank cut its base rate by 0.35% to 9.35% a month ago.
  • Home loan borrowers will see a reduction of Rs 3,500 in EMIs.
  • Total interest outflow for a Rs 1 crore loan will decrease by Rs 8,00,000.
  • Aggregate bank credit growth declined to 9.11% year-on-year as of September 4, 2015.

Sources:

  • "RBI cuts repo rate by 0.50% | Banks take the cue, slash rates" by Manju AB, DNA (Daily News & Analysis), October 6, 2015.
  • RBI Policy Statement, October 6, 2015.
  • SBI Press Release, October 6, 2015.
  • HDFC Bank Press Release, September 2015.
  • Crisil Report, as mentioned in the article.

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