On Wednesday, Axis Bank reduced its base rate by 20 basis points from 10.15% to 9.95% effective from April 13. Lakshmi Vilas Bank also has reduced its base rate, while other smaller private banks such as City Union Bank and Repco Bank are expected to follow suit. Rate cuts by the big banks are compelling smaller institutions to reprice their loans as they fear loss of business in an environment where credit growth is sluggish.

"We are optimistic that the overall credit growth for the system will be better than last year. Investment demand is likely to be back-ended over the course of this year as some of actions carried out by the government during the previous year starts playing out," said V Srinivasan, executive director, corporate banking, Axis Bank.

Lakshmi Vilas Bank has announced a base rate cut of 15 bps to 11.10%. The new rate would become effective from April 14. "During the last six months, cost of funds has come down by 15 basis points for us," Rakesh Sharma, MD & CEO, Lakshmi Vilas Bank, said. The cost of funds came down for the bank by seven basis points from September 30 to December 31 of last year. During the fourth quarter, there was another reduction of eight basis points for the bank after the two repo cuts of 25 bps each by the Reserve Bank of India in January and March this year.

On Tuesday, the top three banks SBI, HDFC Bank and ICICI Bank cut their base rates. While SBI and HDFC Bank cut their benchmark base rate by 15 basis points to 9.85% from 10%, ICICI Bank reduced its base rate by 25 bps to 9.75%.

City Union Bank is also expected to announce a rate cut of 10-25 basis points. The new rate is expected to come into effect within the next 30 days. "We are in the process of finalizing our yearly results and that data would give us more clarity on the actual reduction moving forward," said N Kamaodi, CEO, City Union Bank. The bank's base rate currently stands at 11%.