State Bank of India (SBI) has cut deposit rates by up to 25 basis points (bps) in some maturities, even as credit growth remains sluggish. India’s largest lender has cut deposit rates by 25 bps for deposits less than Rs1 crore with maturity of more than 455 days but less than 3 years from the beginning of this month, according to data on the SBI website.

• Typically, deposit rate cuts precede a cut in lending rates. Banks calculate their lending rate based on their marginal cost of funding. SBI last cut its lending rate earlier this year in August by 5 bps to 9.10%. A basis point is one-hundredth of a percentage point.

• That has largely come about as the central bank moved away from its policy of maintaining a liquidity deficit and started infusing cash into the system this fiscal. RBI said its intention was to improve the transmission of lower policy rates, which have been reduced to 6.5% from 8% at the start of 2015.

• According to Reserve Bank of India (RBI) data, liquidity in the system has improved from a deficit of Rs2.4 trillion in the week ending 31 March to a surplus of Rs769 billion as of 14 September, helping bring down borrowing costs.

• The deposit rate cut comes on the heels of a drop in benchmark government bond yields, down 60 bps since the end of June. A drop in the benchmark bond yield means that the overall borrowing cost for banks has come down.