New Delhi: The Reserve Bank of India on Tuesday slashed the short term lending rate sharply by 0.50 percent to 8 percent, signalling banks to cut rates. To bring down the cost of borrowings for banks, RBI slashed short term lending (repo) rate after a gap of 3 years.

The reduced cost of borrowing was expected to be passed on partially by banks to borrowers in the form of lower interest rate on loans.

As expected, state-owned IDBI Bank on Wednesday announced a cut of up to 0.5 percent in lending and deposit rates, a day after Reserve Bank reduced key short-term rates.
   
While IDBI Bank lowered lending rate by 0.25 percent, it cut the fixed deposit rate by as much as 0.5 percent.
   
The new rates will be effective from April 20, IDBI Bank said in a statement.
   
IDBI Bank's loans linked to base rate will become cheaper following a 25 basis points reduction in rate to 10.50 percent.
   
The bank has taken this pro-active step, keeping in view the recent policy measures announced by RBI and the emerging market conditions expected to arise out of the transmission of these monetary measures, it said.
   
The bank has also decided to reduce the retail term deposit rates by 0.1-0.5 percent in various buckets having maturity of six months and above.
   
In the Annual Monetary Policy, 2012-13, RBI doubled borrowings under the Marginal Standing Facility for banks to 2 percent of their deposits with immediate effect to ease liquidity. It also permitted banks to borrow under the MSF even if they have excess government securities holdings.


(JPN/Agencies)