SBI, which accounts for more than a fifth of India's banking assets, will lower the 1-year MCLR to 7.95 percent from 8 percent, according to a notification on Tuesday.
The RBI last year unveiled the MCLR, which sought to remove much of the discretion commercial banks have to set lending rates. But to its frustration, the pace of bank lending rate cuts has lagged the reduction in policy rates, which fell by a total 200 basis points since January 2015.
The RBI is keen for banks to lower lending rates further to accelerate credit growth and private investment in an economy growing at its slowest in more than three years. Bank loans last financial year grew at their slowest pace in more than six decades.
Flush with deposits after a surprise scrapping of high-value notes last year, banks led by SBI had last sharply cut lending rates under the MCLR system in early January.
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