In a significant move aimed at boosting economic activity, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) announced a reduction in the key policy rate on Friday. The central bank cut the repo rate – the rate at which it lends to commercial banks – by 25 basis points, bringing it down from 5.5% to 5.25%.
What the Rate Cut Means for Borrowers
This decision is a clear signal from the RBI to banks to lower their own lending rates, particularly for long-term loans like home loans. The immediate benefit of this cut is most directly felt by borrowers whose loans are linked to an external benchmark, typically the repo rate itself. For loans tied to other benchmarks like the Marginal Cost of Funds based Lending Rate (MCLR) or the older base rate, the transmission of the rate cut might be slower and sometimes less proportional.
For instance, a full 25 basis point repo rate reduction may only translate to a 10 basis point cut in a bank's MCLR. Therefore, borrowers must check which benchmark their existing home loan is connected to in order to gauge the actual impact on their Equated Monthly Installment (EMI).
Revised Home Loan Rates: A Bank-by-Bank Look
Following the RBI's announcement, here is how the home loan interest rates, linked to the external benchmark, are expected to adjust for some of India's top lenders. These rates are for salaried individuals and can vary based on credit score, loan amount, and other factors.
Private Sector Banks
HDFC Bank: Previously charging between 7.90% and 13.20% (a spread of 2.40% to 7.7% over the old repo rate of 5.5%), the new effective interest rate range is expected to be 7.65% to 12.95%.
ICICI Bank: The bank's External Benchmark Lending Rate (EBLR), previously at 9.20% linked to the 5.5% repo rate, is set to decrease. ICICI's home loan interest rates were in the band of 8.75% to 9.8% per annum.
Kotak Mahindra Bank: For salaried individuals, rates were between 7.99% and 12%, while for self-employed professionals, they ranged from 7.99% to 13.30%, based on the previous repo rate.
Axis Bank: For borrowers with a CIBIL score of 751 and above, rates were 8.35% to 9.10%. For scores below 750, the range was 8.60% to 9.35%.
Public Sector Banks (PSUs)
State Bank of India (SBI): As the country's largest lender, SBI's EBLR was 8.15%. Its home loan interest rates were offered in the range of 7.5% to 8.7%.
Union Bank of India: With an EBLR of 8.25%, the bank was providing home loans at interest rates from 7.45% to 10%, depending on the borrower's credit profile.
Canara Bank: This public sector bank's lending rate stood at 8.25% per annum, with home loan interest rates varying between 7.40% and 10.25%.
Action Steps for Home Loan Borrowers
Existing borrowers should contact their bank to confirm the exact reduction in their interest rate and the consequent change in their EMI or loan tenure. New home buyers are advised to compare the latest rates from multiple banks, as the spreads over the repo rate can differ significantly. While the rate cut is positive news, the actual benefit depends entirely on how quickly and fully individual banks pass on the reduction to their customers across all loan benchmark systems.
