The country's largest public sector bank, State Bank of India, has slashed its benchmark lending rate, base rate, to 9.70 percent, from the current 9.75 percent. Base rate refers to the minimum interest rate below which banks are not allowed to lend.

SBI has taken this decision following Reserve Bank of India's announcement of monetary policy review, in which it slashed two of its most important policy rates; the cash reserve ratio and the repo rate, by 25 basis points.

Meanwhile, the state owned lender has kept its deposits rates unchanged. This may be due to the difficulties faced by banks in collecting deposits, as more and more people are investing in gold or mutual funds. An official of the bank said that the fixed deposits and other deposits rates were left unchanged as SBI is already offering the interest rates on deposits segment.

The revised base rate will be brought into effect from February 4, 2013. After the base rate cut, all advances linked to the base lending interest rate, like the home loans, will attract lesser interest rates.

On the other hand, private sector bank, IDBI Bank had reduced its base rate and interest rates on loans and advances yesterday.