Loans are set to become cheaper after the Reserve Bank of India, in a surprise move, on Tuesday cut interest rate by basis points from 7.25 per cent to 6.75 per cent with immediate effect. The bolder stance by the central bank is seen as a move that will boost the slowing economy.

After RBI policy announcement, Andhra Bank cut its benchmark lending rates by 0.25 per cent, followed by State Bank of India that cut the benchmark lending rate by 0.4 per cent to 9.3 per cent.

The central bank also proposed to reduce the risk weights on affordable housing applicable to lower value but well collateralised individual housing loans, which will boost the housing sector. At present, the minimum risk weight applicable on individual housing loans is 50 per cent.