The Reserve Bank of India (RBI) on Tuesday cut the repo rate (key lending rate) by 25 basis points from 7.75 per cent to 7.5 per cent, but banks have no plans to reduce rates until April.

Banks say that tight money and their chase for more deposits will not allow them to reduce interest rates until the first month of the next financial year.

Pratip Chaudhuri, chairman of State Bank of India (SBI) - the largest public sector lender of India - said that a decrease in lending rates was not possible this month because the central bank hadn't lowered the CRR.

While the central bank lowered the repo rate, it left the cash reserve ratio (CRR) unchanged at 4 per cent. Given the scarcity of liquidity in money markets, many bankers had also been expecting the bank to cut the CRR too. CRR is the portion of deposits that banks have to keep with the central bank.

Deepak Parekh, chairman of private-sector lender HDFC, also said that a decrease in lending rate would not take place until April.

Some financial institutions said that they would look other lenders' moves for a signal.

Kapil Wadhawan, chief managing director of Dewan Housing, said, "I'm encouraged to see this move by RBI in reducing the repo and reverse repo rates. We will wait to see how the banks react to this move by reducing their base rates downward."

Almost all bankers said that reduction in lending rates would be a challenge unless they were able to drag their cost of funds down. They agreed that the rate cut would be transmitted to money markets and finally to borrowers, but added it would happen with a lag.