The country’s largest lender, State Bank of India (SBI), has cut its key lending rate by 10 basis points across all tenures from Tuesday, and has also reduced interest rates on term deposits.

The one-year Marginal Cost of funds-based Lending Rate (MCLR) will come down to 8.15 per cent from 8.25 per cent, effective September 10. This is the fifth straight cut in MCLR in the current financial year (FY 2019-20), SBI said in a statement.

A senior SBI executive said that while bank is passing on benefit of cost, the demand for credit is also low. There could be another round of reduction in lending rates.

The Reserve Bank of India's data on year-to-date credit offtake indicates that the outstanding loans of the Indian banking system as of mid-August have shrunk by about 0.9 per cent from the March-end position. Year-on-year credit growth was about 11.6 per cent.

"We are expecting a pick up in credit demand during busy season which starts in October," the executive said.

In view of the falling interest rate scenario and surplus liquidity, SBI is also realigning its interest rates on term deposits (TD), bank said.

The lender has reduced retail TD rates by 20-25 bps and bulk TD rates by 10-20 bps across tenures.

SBI is sitting on surplus funds in excess of Rs 50,000 crore, which is creating a challenge to deploy resources gainfully, the official said.

Deposits in the banking system have grown 0.7 per cent from the start of the financial year till mid-August and 10.2 per cent year-on-year, according to RBI data.