"The bank has reduced marginal cost of funds-based lending rate (MCLR) by 0.9% from 8.90% to 8% for one-year tenure", SBI said.
Banks had moved to the MCLR regime from April 1 past year, which replaced the base rate system for setting interest rates on loans to new borrowers.
According to estimates, banks have collected cash deposits of over Rs 14.9 lakh crore following Prime Minister Narendra Modi's November 8 announcement, demonetising Rs 1,000 and Rs 500 notes to eliminate black money, counterfeit notes and terror financing.
Since the government on 8 November banned Rs500 and Rs1,000 currency notes, banks have received a flood of deposits.
These include interest rate subsidies on housing loans of up to 4%, a 60-day interest waiver scheme for farmers and a doubling of the credit guarantee for medium and small enterprises-measures which are likely to increase credit offtake. It has reduced MCLR by 30 basis points to 60 basis points across various tenors since April 2016. The bank will levy interest rate of 9.20 per cent and 9.30 per cent for two years and three years, respectively.
The SBI MD explained that on a 30-year home loan of ₹30 lakh, the minimum EMI benefit (reduction in EMI burden) that the borrower will get will be ₹1,200 per month. Borrowers of IDBI bank seeking three-year loans will be charged 9.30%, down 40 bps; while six month loans have been pegged at 8.90%, down 35 bps.
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Punjab National Bank (PNB), too, followed suit after India's largest public sector bank announced its decision.
SBI also lends to housing finance companies.
"While respecting the autonomy of banks, I appeal to them to move beyond their traditional priorities and keep the poor, lower middle class and middle class at the focus of their activities", Modi had said.
Since November, the bank has reduced MCLR by 0.85 per cent, PNB said in a statement.
For one year, the new MCLR will be 9.15 per cent.
That had raised expectations banks would cut lending rates to boost credit growth and spark a revival in private investments.