Mumbai, Feb 11: Country's largest lender State Bank of India Monday slashed Prime Lending Rate by 0.25 per cent to 12.50 per cent, a decision that will make housing and car loans cheaper. "Benchmark Prime Lending Rate is revised downward by 0.25 per cent from 12.75 per cent to 12.50 per cent with effect from February 16," SBI said in a communication to the Bombay Stock Exchange.

The reduction in PLR is likely to moderate lending rates for all category of borrowers, including housing (floating rate), corporate, car loan etc.

The decision follows the up to one per cent cut in housing and consumer loan rates announced by Canara Bank and Allahabad Bank.

Housing finance company HDFC and PNB Housing Finance too had reduced interest rate on housing loan. While HDFC reduced its RPLR by 0.25 per cent effective February 1, PNB Housing Finance slashed the rates by 0.5 per cent.

RBI Governor YV Reddy, while announcing the quarterly monetary policy review on January 29, had asked bankers to explore the possibility of reducing interest rates in the light of high net interest margin. Even Finance Minister P. Chidambaram, after meeting bankers on January 4, had underlined the need to cut deposit and lending rates by half a per cent to spur investment and consumption so that the economy can be sustained on a high growth path. "I would like, I can't wish this, that banks cut lending and deposit rates by 50 basis points so that it stimulates investment and onsumption," he had said.

Chidambaram is again meeting heads of public sector banks Tuesday in the national capital for a review of the banking sector.