The Reserve Bank of India (RBI) has cut the Repo Rate recently. It has reduced the Repo Rate under the liquidity adjustment facility (LAF) by 25 basis points (bps) from 8.0 per cent to 7.75 per cent on January 15, 2015.

 With the introduction of Base Rate System since July 1, 2010, all rupee lending rates (including advances upto ₹ 2 lakh) have been deregulated. Accordingly, the interest rates on rupee advances are determined by banks with the approval of their respective Boards. In a deregulated environment, banks have complete freedom in deciding their spread, risk premia, term premia and other customer specific charges as considered appropriate on the loans and advanes based on their commercial judgment.

 Following the reduction in the policy rate by 25bps to 7.75 per cent on January 15, 2015, the median base (lending) rate of banks declined by 5 bps to 10.20 per cent so far (upto February 23, 2015). Eight banks (2 Public Sector Banks, 1 private sector bank and 5 foreign banks) have reduced their base rates in the range of 25-50 bps so far.

br> This was stated by Shri Jayant Sinha, Minister of State in Ministry of Finance in written reply to a question in the Lok Sabha today.

Monetary policy rate cut prompts partial downward movement in bank base lending rates and varied transmission across banks. A reduction in the policy repo rate under the liquidity adjustment facility prompted a decline in the median base lending rate and selective base rate cuts by individual banks. Under the Base Rate System banks operate in a deregulated environment where they determine lending spreads, risk premia, term premia and customer specific charges with board approval, so transmission of policy rate changes varies across institutions.