Mumbai, Jan 1 (IANS): State-run State Bank of India (SBI) on Monday announced a hefty reduction in its lending base rate from the New Year by 30 basis points (bps), to 8.65 per cent per annum.

With this reduction from the earlier base rate of 8.95 per cent, SBI's base rate has become the lowest among commercial banks, coming as a relief to its many retail borrowers, particularly of home and student loans.

Similarly, the bank's Benchmark Prime Lending Rate (BPLR) was also reduced with effect from January 1, to 13.40 per cent yearly, from the earlier 13.70 per cent p.a.

"The revised base rate is reduced from 8.95 per cent to 8.65 per cent for existing customers and BPLR is reduced from 13.70 per cent to 13.40 per cent," an SBI release said here.

"Additionally, the bank has decided to extend ongoing waiver on home loan processing fees till March 31, 2018, for new customers keen on buying their dream house and other customers looking to switch their existing loans to SBI," it added.

There was, however, no change made to SBI's Marginal Cost of Lending Rates (MCLR), the later system whereby rates are fixed for a one-year period and revised only at the end of each year.

The SBI had earlier revised its base rate by 5 basis points on September 28, while some other public sector banks like Andhra Bank and Bank of Baroda have also announced cuts in base rates.

"The reduction in base rate is a new year's gift to the bank's loyal customers as a large number of consumers who have their loan linked to base rate will be benefitted by decrease in rates," MD, Retail and Digital Banking, P.K. Gupta said in the statement.

"This reduction is part of bank's efforts to ensure transmission of reduction in the policy rates in the recent past. Approximately 80 lakh customers will be benefitted by this move," he said.

In this connection, the Reserve Bank of India (RBI) has earlier pointed out problems around lending rate calculations, which are also holding up proper transmission by commercial banks of the interest rate cuts made by the central bank.

"Arbitrariness in calculating the base rate and MCLR and spreads charged over them has undermined the integrity of the interest rate setting process. The base rate and MCLR regime is also not in sync with global practices on pricing of bank loans," the RBI had said.

Banks' base rate on an average reduced 0.61 per cent in the period between December 2014 and October 2016, when the RBI lowered its repo, or short-term lending rate for commercial banks, by 1.75 per cent.