RBI cuts repo rate by 100 bps in 2025, but home loan borrowers may have to wait for full benefit
While the RBI repo rate cut brings hope, banks often delay passing on the benefit, meaning floating-rate borrowers may have to wait for lower EMIs.
The Reserve Bank of India (RBI) has cut the repo rate three times this calendar year, with two 25 basis point (bps) reductions in the first two Monetary Policy Committee (MPC) meetings. There were followed by a sharper 50 bps cut in the most recent policy. This brings the total rate cut to 100 bps, signalling the central bank’s strong intent to stimulate credit demand and revive economic activity by lowering borrowing costs.
This development should come as positive news for home loan borrowers, as it is expected to reduce EMIs, especially for those with floating-rate loans.
However, despite the RBI's clear direction, banks and lending institutions often delay or partially pass on the benefits of rate cuts. As a result, many borrowers, particularly those with floating-rate loans, may experience a lag in relief, as the rate transmission is not always immediate or complete.
For new home loan borrowers
So, it will be a while before the lower rates are passed on to the new borrowers. In fact, the 50 bps cut has not been passed on to new borrowers, and mostly PSU banks have passed on a rate cut of up to 40 bps in some cases.
Below is a list of banks that are offering home loan interest rates of 8% or less.
“The lowered CRR limits are expected to boost transmission and new borrowers should also be able to avail low rates soon,” says Adhil Shetty, CEO BankBazaar, a fintech portal. So, it will be a while before reduced home loan rates are passed on to new borrowers, which could be a few days to a week or more.
Why is there a delay in passing on the repo rate cut?
There are reasons behind why it takes time for banks to pass on the rates. Historically, many loans in India have been linked to the Marginal Cost of Funds-Based Lending Rate (MCLR).
This system incorporates a bank’s internal cost of funds, operational costs, and risk premiums. “As a result, even when the RBI reduces the repo rate, banks may not immediately revise MCLR since it’s based on their own cost structures rather than the RBI’s benchmark rate,” says Raoul Kapoor, co-CEO, Andromeda Sales and Distribution.
Existing home loan borrowers
So, if your loan is still linked to the Base Rate or Marginal Cost of Funds-based Lending Rate (MCLR), this rate cut may not benefit you immediately as these benchmarks are slower to respond to policy changes compared to the repo-linked loans that reflect the revision within three months.
“So if you are on an older benchmark, this is the time to consider a switch. A refinance at 100bsp lower will help you save close to ₹4 lakh on a ₹25 lakh outstanding. If you retain your higher EMI, your savings will be even higher,” says Shetty.
On the other hand, repo rate-linked loans, introduced more widely in 2019, are directly pegged to the RBI’s repo rate. In these loans, any change in the repo rate should be passed on more transparently and quickly, depending on the reset clause. However, not all borrowers have shifted to this model, and many older loans still remain on MCLR or base rate systems.
Lower rates likely to be passed on with time
“Despite these challenges, with a total repo rate cut of 100 basis points this year, there is growing expectation that banks will begin passing on the full benefit to borrowers—especially for home loans. This is also crucial to align with the RBI’s objective of stimulating demand and supporting economic growth through monetary easing,” says Kapoor.
Once all the benefits are passed on, this is how home loan borrowers will benefit.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics
