The RBI last week slashed the bank rate by half a percentage point (50 basis points) to 10 per cent and repo rate by one percentage point to seven per cent, sending a strong signal that it wants banks and institutions to lower their lending rates.

IDBI has reduced its minimum term lending rate (MTLR) by half a percentage point to 14 per cent (exclusive of interest tax). The minimum short term lending rate (MSTLR) has also been cut by a similar marginfrom 13.5 per cent to 13 per cent. IDBI has kept the interest rate band unchanged at 3.5 per cent. In other words, the MTLR will vary between 14 per cent and 17.5 per cent and the short term rates between 13 per cent and 16.5 per cent, depending on therisk perception.

IFCI has decided to reduce its prime lending rate by 0.5 per cent to 14 per cent with effect from Tuesday. The lending band will extend from 14 to 17.5 per cent. The short-term prime lending rate (STPLR) for lending for maturities up to three years including working capital assistance has also been revised downwards by 0.5 per cent to 13 per cent from 13.5 per cent. Here too the lending band will be 3.5 per cent wide from 13 to 16.5 per cent.

``The revised interest rates will be applicable to loans in respect of which agreements are executed on or after April 8, 1998 and would remain effective during the currency of the loan,'' an IDBI release said on Tuesday.

Said IDBI chairman S H Khan: ``The cost of borrowing has come down by 100 basis points and there is enough liquidity in the system. Hence we decided to cut the lending rates instead of waiting for the announcement of the credit policy.'' ``I cannot predict the interest rate scenario even in the medium term. The trends arechanging frequently and we need to realign our lending rates in accordance with the market rates,'' Khan added.

Tapan Ganguly, executive director, IFCI, said as the bank rate has been reduced by one percentage point the institution has decided to pass on the benefit to its customers by reducing the PLR by 0.5 per cent.

Ganguly added when the RBI had increased the bank rate, the institution had raised its PLR by only one percentage point. ``IFCI had absorbed the increased cost of funds of one per cent at that time, now when the bank rate has gone into reverse gear, the institution has decided to pass on the benefit to its customers,'' Ganguly said. The reduction in PLR is on rupee loans. The rate for assistance under the equipment finance scheme has also been reduced to 14 per cent from 14.5 per cent.