State Bank of India (SBI), the nation's top lender by assets, said on Tuesday it would cut its base lending rate by 15 basis points to 9.7 per cent effective June 8 after the central bank cut its key policy rate for the third time this year.
Some other smaller state lenders also announced base lending rate cuts of between 25 and 30 basis points.
Earlier on Tuesday, the Reserve Bank of India cut the repo rate by 25 basis points, taking the total reduction this year to 75 basis points to help boost economic growth.
While many banks have started passing on the benefits of the monetary easing to the broader economy, the quantum of cuts lag the reduction in the policy rate. SBI's latest base lending rate cut will take its total reduction this year to 30 basis point.
Eight of the more than two-dozen state-run lenders, who dominate India's banking sector with more than 70 per cent share of the assets, have yet to announce any interest cut this year.
Bankers have blamed tight liquidity and slower credit growth as reasons for not cutting rates aggressively. India's bank loan growth for the fiscal year to end-March was the slowest in 18 years.
"There is not overmuch of liquidity. More of liquidity would also enable better transmission of rate cuts," State Bank of India Chairman Arundhati Bhattacharya said in a television interview earlier on Tuesday, following the RBI rate decision.
"As we see a little bit of the credit growth coming in, it will make it much easier for the banks to pass on the rate cuts," Bhattacharya said ahead of SBI's rate cut announcement.
SBI has guided for a loan growth of about 14 percent in the fiscal year that began in April, compared with an adjusted 10.5 percent increase posted last year.
Allahabad Bank, a smaller state-run lender, said on Tuesday it was lowering its base lending rate by 30 basis points. Dena Bank and Punjab and Sind Bank said they would cut the base rate by 25 basis points each.