The reduction will be effective from June 8, state-owned PNB said in a statement.

Private sector Axis Bank has slashed term deposit rate on various maturity by up to 0.25% effective June 9.

One-year deposit would now attract a lower 0.1% interest rate to 8.3% while interest rate on 11-12 months fixed deposit has been lowered to 8% from 8.25%.

The decision to cut interest rate on fixed deposits comes a day after RBI reduced key policy rate.

As part of its second bi-monthly monetary policy review, RBI cut the repo rate (short-term lending rate) from 7.5% to 7.25, but left other policy tools like cash reserve ratio unchanged at 4% and Statutory Liquidity Ratio (SLR) at 21.5%.

Following policy action, several banks, including market leader State Bank of India reduced its base rate or minimum lending rate to 9.70% from 9.85% effective June 8.

Another state-owned Allahabad Bank cut base rate 0.30% to 9.95%, while Dena Bank, Punjab & Sind Bank reduced their base rate by and 0.25% each.

Dena Bank and Punjab & Sind Bank lowered their base rate to 10%. With the reduction, all loans linked to the base rate will come down proportionately.

IDBI Bank, however, has reduced bulk deposit rate, a move which is a precursor to a cut in lending rate.

Other banks are likely to follow suit in the next few days.