Bangalore: Following the proposal of D Subarao, RBI Chief and Finance Minister Pranab Mukherjee, most of the Indian banks have agreed to trim their Benchmark Prime Lending Rate (BPLR).

In an interactive session organized by the Karnataka chapter of the Confederation of Indian Industry (CII) last month, Subarao had said, "Given the current economic context and the policy initiatives of the RBI, there is considerable scope for banks to reduce the lending rates."

The first mover in reducing lending rates was Union Bank of India, who announced to reduce its BPLR by 25 basis points (bps) to 11.75 percent; later on the State Bank of India also announced the reduction in its BPLR by 50 basis points to 11.75 percent per annum (p.a.). Following its parent bank, the State Bank of Mysore reduced its BPLR by 50 basis points to 12.25 percent.

Latest inclusion in the list are Industrial Development Bank of India (IDBI), Syndicate Bank and Bank Of India, which announced to slash their BPLR by 25 basis points to 12.75 percent, by 50 bps to 12 percent and by 25 bps to 11.75 percent respectively with effect from July 1.

A senior SBI executive said, "It is expected that with this reduction in the benchmark prime lending rates, the Net interest margin would be reduced by 5-6 basis points."

Following the suite, other banks are expected to reduce the lending rates as well. Currently, PNB has pegged its benchmark rate at 11percent, which is the lowest in the industry. It is expected that reduction in rates will help in inducing demand and spur the consumption. Banks have been very much apprehensive about BPLR cuts, considering the inverse effect of same on their net interest margin.