The ICICI Bank on Monday announced that it would offer retail loans other than home loans at 50 basis point lower interest, but on a floating basis.

HDFC [Get Quote] has announced a festival offer - valid till October 31 - of home loans at 10.50 per cent, 50 basis point lower than its monsoon offer.

Meanwhile, government-owned State Bank of India [Get Quote], the country's largest lender, is also expected to cut retail interest rates in the next few days.

The SBI needs to take a policy decision on whether the proposed interest rate reductions would be for a limited period or a permanent one, said a senior SBI official requesting anonymity.  

These cuts are being interpreted as efforts to stoke demand. Rising interest rates -- by about 4 percentage points -- as a result of successive increases in the Reserve Bank's key signalling rates have seen demand for home, car and other retail loans shrink sharply.  

Most banks' retail loan portfolios have almost remained at the March 2007 levels with fresh disbursements just matching repayments.

Car loans by banks have not grown this year though car sales have increased 13.29 per cent between April and August. Sales of commercial vehicles, which are much more interest rate sensitive, shrank by 3.71 per cent in the same period, however.  

Home loan demand has also been affected by steep increases in property prices. 

"Certain customers have been postponing their purchases in anticipation of a positive outlook on rates. Those customers would be prompted into action with this option of a floating rate, which is benchmarked to the floating reference rate," said N R Narayanan, head (car & commercial vehicle loans), ICICI Bank. 

The bank, however, is already budgeting a sharply lower retail loans growth of 10-15 per cent against around 40 per cent in the previous few years. 

HDFC has decided to keep the reduction in rates as a special offer till the end of October, coinciding with the second quarterly review of the monetary policy by the Reserve Bank of India on October 30. 

The bank will need to take a view on sustaining lending at the lowered interest rate depending on the RBI's actions. 

"Our lending rates are a function of our cost of funds in which we have seen a reduction. Historically, we have maintained a pre-determined spread and always believed in passing the benefits to the customers. This is an extension of the same philosophy," said Renu Sud-Karnad, executive director, HDFC.