The largest public sector bank, State Bank of India, has slashed its benchmark prime lending rate (BPLR) by 25 basis points, bringing it down to 14.50 percent from the existing 14.75 percent. The new rate will become effective from September 27, 2012.

It is to be noted that the bank had introduced a cut in its base rate just three days ago and fixed it at 9.75 percent. The reduction in both base rates and BPLR are in response to the lowering of Cash Reserve Ratio by 25 basis points by Reserve Bank of India (RBI).

It is speculated that SBI's move could trigger a series of similar rate cuts by other banks.

Talking about the bank's base rate and benchmark lending rate, the Chief General Manager of SBI, Mr. Sunil Pant said that majority of the bank's loan portfolio (74 percent) is based on floating interest rate. Out of this, 67 percent relates to base rate and 7 percent relates to BPLR.

He further said that the cut in BPLR would lower the net interest margin (NIM) by 2 to 3 basis points as the loans are re-priced instantly with the reduction in benchmark rates. On the other hand, rate cuts in deposits interest rates become effective only on maturity of the deposits. It is to be noted that SBI cut interest rates on term deposits by 100 basis points at the beginning of the month.