The country's largest private sector lender, ICICI Bank [Get Quote], has also said that it will review its interest rates in the next few days after seeing the impact of the Reserve Bank of India's (RBI's) recent steps on liquidity.

"We will review interest rates after watching the impact of RBI decision on liquidity� It is premature to consider interest rates right now, but we will review it in the next few days," ICICI Bank's Managing Director and CEO K V Kamath said.

RBI had on Saturday cut the repo rate by 50 basis points (bps) to 7.5 per cent and the Cash Reserve Ratio (CRR) by 100 bps to 5.5 per cent to infuse liquidity into the system.

Apart from ICICI Bank, two other leading private sector lenders - HDFC Bank [Get Quote] and Axis Bank - have also indicated that they will review interest rates after watching the impact of RBI steps on liquidity.

Improvement in liquidity and reduction in cost of borrowing at the repo window have made it possible for banks to cut lending rates. The Mumbai-based Union Bank today reduced its PLR by 50 bps to 13.50 per cent with immediate effect. It had already reduced its lending rate on home loans by 50 bps with effect from October 21, 2008.

"As an impact of the PLR cut, the bank will have to forgo interest income of about Rs 100 crore (Rs 1 billion). However, this will be more than compensated by the earnings on resources (made available through the CRR cut), which would be deployed in lending operations," a senior official of Union Bank said, adding that over Rs 3,500 crore (Rs 35 billion) was available with the bank for deployment.

The Kolkata-based United Bank, the second PSU bank to cut PLR, said in view of RBI's recent liquidity infusion measures, the bank was slashing its lending rate by 25 bps.

This rate cut would be applicable to education loan, housing loan, advances to SMEs and all other loans, including existing loan accounts, the bank said. The Kolkata-based lender added that it would consider reducing lending rates further next week.