Bangalore based Ujjivan Financial Services would be reducing interest rates on loans by up to 290 basis points from the month of July. The micro finance institution (MFI) has generated profits for the first time since it was established five years ago. Ujjivan has a customer base of 6.5 lakh poor customers.

Around a month back, the fourth largest microfinance institution of the country, Bandhan Financial Services had slashed lending rates. Ujjivan's decision seems to have come as a follow up of Bandhan.

"As we reach some scale, we have decided to pass on the benefits to our borrowers," Ujjivan managing director Samit Ghosh said.

According to a company official, the slashed rated of Ujjivan would be applicable only to new loans and renewals.

New business loans would be provided at 23% from July as against 25% previously. The interest rate on repeat business loans would also be reduced to 22% per annum as compared to 24.5% now. The company will reduce rates to 25% on fresh family loan from 26.9% a year. For repeat loans, the new rates will be 24% as against 26.9% now.

"The Reserve Bank of India (RBI) has been nudging us to reduce interest rates for a long while," Mr Ghosh said.