State Bank of India has fixed its benchmark prime lending rate at 10.25 per cent, 0.25 per cent below the existing PLR, which is 10.5 per cent, with effect from the new year even as it decided to reduce interest rates on domestic term deposits by 0.25 per cent.

The BPLR would be known as State Bank Advance Rate and all loans (except those linked to market benchmarks such as commercial paper, Mumbai inter-bank offer rate, government securities-linked loans), presently linked to PLR, State Bank Medium Term Lending Rate (SBMTLR) and State Bank Short Term Advance Rate will be linked to it with effect from January 1, 2004, the bank said in a release in Mumbai on Monday.

The rates on loans, which are presently linked to PLR, SBMTLR and short-term advance would be reduced by 0.25 per cent, the release said.

With this, tenor linked PLRs will be discontinued. Term premia and credit risk premia would be added to SBAR for determining lending rates, it said.

The BPLR rate is in response to Reserve Bank of India's suggestions and takes into account actual cost of funds, operating expenses and a minimum margin to cover regulatory requirement of provisioning, capital charge and profit margin.

Several banks like Union Bank of India, Canara Bank and Bank of Baroda have already announced BPLR.

The bank also announced a cut in its interest rates by 0.25 per cent with effect from January 1 on domestic term deposits with maturity of two year to less than three years and three years and above.

SBI said with this, the revised interest rate of deposits of one year to less than three years would be five per cent while for maturities of three years and above at 5.25 per cent.

The interest rates for deposits of 15 to 45 days, 46 to 179 days, 180 days to less than one year would continue to remain at four per cent, 4.5 per cent and 4.75 per cent per annum respectively, it said.