Nationalised Banks Cut Loan Rates After RBI’s Repo Rate Cut
Banks offer a spread on the repo rate based on the borrower’s profile
Mumbai: Following the Reserve Bank of India’s (RBI) 25 basis points repo rate cut on Friday, several nationalized banks have cut interest rates on retail loans by 25 basis points including home, car, education, and other repo linked lending rate (RLLR) over the last two days. Punjab National Bank, Bank of Maharashtra (BoM), Bank of India, Indian Bank, Bank of Baroda have cut their RLLR by 25 basis points. Other banks are expected to follow suit. Top private banks are expected to announce a reduction after January 15.
One basis point is one hundredth of a percentage point. However, banks have refrained from reducing the Marginal Cost of Lending Rate (MCLR), in a bid to protect their margins. MCLR loans are largely offered to companies.
Bank of Maharashtra on Sunday said that its home loans will now start at 7.10 per cent, while car loans will begin at 7.45 per effective Saturday. Indian Bank said that its RLLR has been lowered to 7.95 percent from 8.20 per cent.PNB said that it was revising its RLLR with immediate effect from 8.35 per cent to 8.10 per cent. Bank of Baroda reduced its RLLR to 7.90 per cent as against the existing 8.15 per cent.
It is pertinent to note that public sector banks pass on the repo reduction on an immediate basis. However, a few lenders follow the policy of monthly reset so the impact of the reduction will be felt on 5th to 15th of the following month. Most private and foreign banks have the reset policy of quarterly and the impact will be felt only in the next quarter.
Says Vipul Patel, founder and chief executive officer at MortgageWorld, “A home loan borrower who has taken a Rs 50 lakh loan linked to Repo rate in November 2025 at 7.5 per cent for 25 year tenure (300 Equated Monthly Instalments) pays EMI of Rs 36950. Post RBI’s repo rate cut of 25 basis points, if he chooses to lower the EMI while keeping the loan tenure constant, his new EMI works out to Rs 36140 resulting in total interest saving of Rs 2.42 lakh over the loanduration. Incase he chooses to retain the EMI and reduce the loan tenor, the total EMIs would reduce by 18 (from 300 to 282) resulting in interest saving of Rs 6.48 lakh. Thus, opting for a lower tenure by keeping the EMI unchanged will result in higher interest saving and clear your loan outstanding faster.”
As per the central bank’s mandate issued in 2019, banks have to link their retail loans (such as home loans, car loans) to external benchmark lending rates which is mostly the repo rate of the RBI (RLLR). Banks offer a spread on the repo rate based on the borrower’s profile.
This Friday, the six-member monetary policy committee led by RBI Governor Sanjay Malhotra voted unanimously to lower the repo rate by 25 basis points to 5.25 per cent and retained a neutral stance, providing room for further rate cuts.
