The State Bank of India has reduced its lending rates by 5 basis points based on the marginal cost of funds across all maturities. The new rates will be effective from Wednesday.

One basis point is one-hundredth of a percentage point. The one-year lending rate will now be 7.95% instead of 8%. The revised overnight lending rate will be 7.70%, and three-year loans will now have 8.10% interest rate.

This is the first cut in the marginal cost of funds rate since January when India’s largest lender reduced the rates by 90 basis points, bringing the one-year rate down to 8% from 8.90%. Banks had reduced their rates in the beginning of the year because of surging deposits following the Centre’s demonetisation drive.

The Reserve Bank of India introduced the lending rates based on the marginal cost of funds in April 2016, as it is expected to reflect the ability of a bank to give away loans, and makes the fixing of lending rates transparent. The RBI requires banks to review and announce these rates once every month.