Banks in the country have started responding to the latest cut in the key policy rates by the Reserve Bank of India (RBI). Immediately after the announcement of the lower interest rates, two public state banks have slashed their benchmark prime lending rate (BPLR) by 50 basis points.

Banks including Bank of Baroda (BoB) and Union Bank of India have cut their PLR by 50 basis points to 12% each. The revised rates will be effective from the new financial year beginning on April 1st.

An Executive from Union Bank of India said that the rate cut by the banks comes in response of the RBI's decision to cut the repo and reverse repo rates. "Our decision will reduce the interest burden in all BPLR-linked advances of the bank," he added.

Since November 2008, Union Bank has reduced the PLR four times from14% to 12%.

Even Bank of Baroda slashed the PLR by 50 basis points to 12%. The Chairman and Managing Director of the bank, M D Mallya said, "Our board, which met in Delhi today, approved the proposal to cut BPLR by 50 basis points to 12 per cent from April 2009."

Meanwhile the bank has also decided to cut the interest rates on its deposits by 50 to 75 basis points across various maturities. The new deposit rates of the bank will also come into effect with the new fiscal.

"The bank will be able to maintain interest margin in 2009-10," added Mallya.

In the latest cut, RBI has slashed the repo rate by 50 basis points to 5% and reverse repo rate identically to 3.5%.