In the first half of 2025, the Reserve Bank of India (RBI) has reduced the repo rate by 100 basis points, ensuring a significant decline in the loan rates in the banking sector. This has brought great relief, especially for home loan borrowers, because this loan is taken for a long period (20 to 30 years), and even a slight change in interest rates has a big impact on EMI.
RBI’s warning: Customers should get the benefit of at least 50 basis points
The RBI has clearly instructed all banks to give the benefit of a cut of at least 50 basis points to their customers. With this step, it is expected that the rest of the banks will also reduce the rates soon and customers will get relief.
Weeks after cutting the repo rate by 50 basis points, the RBI urged banks to quickly lower their lending rates to help speed up the impact of its policy move. In its June bulletin, the central bank said current financial conditions are supportive enough for banks to effectively pass on the benefit of rate cuts. Since the rate reductions in February and April, many banks have already started lowering interest rates for their customers.
PSU banks showed speed, many private banks lagged behind
A 100-basis point cut in the repo rate has led public sector banks to significantly lower their home loan rates, from around 8.40–8.50% to as low as 7.35–7.50%, says Adhil Shetty, Co-founder and CEO, BankBazaar. This full transmission makes borrowing more affordable, especially for buyers in the affordable housing segment, he adds.
“Private sector banks, however, have been slower to respond. While a few have passed on partial cuts of 25–55 basis points, others are yet to move. As banks continue to reprice loans, the broader trend suggests cheaper credit and improved housing affordability in the coming months,” Shetty notes.
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Impact on affordable housing
Shetty feels that a 100-basis points reduction in repo makes borrowing more affordable for both buyers and developers. High interest costs have held back buyers, especially in the affordable housing space, he says.
“This series of rate cuts are expected to increase the demand for housing. Lower interest rates mean more homebuyers will be able to afford homes,
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