India's biggest lender, State Bank of India (SBI) has announced that it has fixed its base rate for lending at 7.5% annually, which would kick in from July 1.

The base rate is the minimum interest a bank has to charge on its loans.

In February 2010, the central bank had dismantled a former system of determining interest rates -- benchmark prime lending rate -- which was discriminatory to smaller borrowers. According to the BPLR system of finding out lending rates, banking institutions could charge varying interest on different categories of borrowers.

Business groups benefited from the system, with loans to them being routinely given at below BPLR rates, causing a situation where small and individual depositors ended up subsidizing the business loans.

But with the new rule coming into play, no banking institution can provide funds at an interest rate lower than the base rate.

But, each bank can settle on their own base rate, and the majority of banking institutions are in the process of declaring theirs before July 1.

The new base rate by SBI that controls around one-fifth of the total loans and advances in India, will give strict rivalry to other private lenders and a few of its peers to come up with a matching deal. (With Inputs from Agencies)