Microfinance lender turned bank, Bandhan Bank on Monday reduced its lending rate for micro loans by 0.6 per cent bringing down the effective interest rate to 19.90 per cent. Currently, it offers micro loans at 20.5 per cent interest rate.

This is the third time the bank has reduced its interest rate for such consumers. Immediately after the micro-financing institution transformed itself into a bank in August last year, it had slashed the rate by 1.4 percentage points or 140 basis points (bps) effectively reducing the rate to 21 per cent.

Again in April this year, the rate was reduced by another 0.5 per cent or 50 bps for the micro-small scale industries making it 20.5 per cent.

With the latest round of lending rate reduction, Bandhan Bank has pared is micro loan rate by 2.5 percentage points or 250 bps in three stages in less than 11 months since it started operations as a universal bank.

“With the transformation of the micro lending institution into a bank, the cost of funds has come down so we can afford to lower the interest rates. This reduction will benefit the micro-small scale industry who finds it tough to arrange for their funds,” the bank’s chairman and managing director Chandra Shekhar Ghosh said.

Since its launch, the bank has mobilised close to Rs 15,000 crore deposits.

According to Ghosh, it will not only help attract more such people opting for loans it will ease their financial burden as well. The cost impact on the bank is stated to be favourable with this decision.

The rate reduction is applicable for fresh loans only while the existing ones have been kept out of the purview.

The micro loans are generally granted for a period of 1-2 years.

Presently, Bandhan Bank operates across 29 Indian states and Union Territories through a network of 688 branches, 2,022 Doorstep Service Centres and 237 ATMs with more than 8.77 million customers being served by a team of 21,000 employees.

The Kolkata-headquartered bank has two divisions — micro banking and general banking, offering a suite of retail financial solutions, including a variety of savings and loan products.

Currently, the savings bank account interest rate is 6 per cent for balance above Rs 1,00,000 and 4.25 per cent for balance up to Rs 1,00,000.

For term deposits, the maximum interest rate offered is 8.25 per cent for one to three years, with an additional 0.5 per cent for senior citizens.