RBI Cuts Repo Rate: Implications for Home Loan Borrowers
In a noteworthy move, the Reserve Bank of India (RBI) has decreased the repo rate by 25 basis points, bringing it down to 6.25%. This decision, made during the Monetary Policy Committee (MPC) meeting on February 7, 2025, marks the first alteration in the repo rate in nearly two years, offering significant relief and advantages to home loan borrowers across the nation.
Impact on Home Loan Interest Rates
Following the RBI’s decision, several major banks, including Canara Bank, Punjab National Bank (PNB), and Union Bank of India, have already announced cuts to their repo-linked lending rates (RLLR) by the same margin of 25 basis points. Home loan borrowers with these banks will benefit from reduced equated monthly installments (EMIs) or an option to shorten their loan tenure without adjusting the EMI amount.
This reduction comes as a substantial relief for borrowers, especially those with ongoing home loans at previous higher rates. For example, a borrower with a home loan of ₹50 lakh and a 20-year tenure might see their EMIs fall by approximately 1.8%, providing considerable savings over time.
What is Repo Linked Lending Rate (RLLR)?
The Repo Linked Lending Rate (RLLR) is the interest rate at which banks lend to customers, directly correlated with the repo rate set by the RBI. Since an RBI circular introduced in October 2019 requires banks to link retail loans to external benchmark lending rates (E-BLR), the repo rate has emerged as a widespread benchmark for these loans. Borrowers with RLLR-linked home loans will experience variations in their interest rates and EMIs as the RBI modifies the repo rate.
Most home loan products in the market currently offer floating interest rates linked to RLLR, making them responsive to changes in the RBI’s monetary policy.
Specific Changes from Major Banks
Several banks have announced their revised RLLR rates as follows:
- Canara Bank: The RLLR has been adjusted from 9.25% to 9.00%, effective from February 12, 2025. This rate applies to new loans initiated after this date and to existing loans that have completed three years under the RLLR regime.
- Bank of Baroda: Effective from February 10, 2025, the Baroda Repo Linked Lending Rate (BRLLR) has been set at 8.90%, marking a significant development in making borrowing more affordable.
- Bank of India: The bank has reduced its repo-based lending rate from 9.35% to 9.10%, effective February 7, 2025.
- Union Bank of India: Effective February 11, 2025, the EBLR has been dropped from 9.25% to 9.00%.
- Indian Overseas Bank (IOB): The IOB has adjusted its RLLR from 9.35% to 9.10%, effective February 11, 2025.
- Punjab National Bank (PNB): The RLLR has been lowered from 9.25% to 9.00%, effective February 10, 2025.
The adjustments made by these prominent banks follow the central bank’s decision, emphasizing the broader impact of the RBI’s monetary policy on borrowing costs across the financial sector.
Conclusion
The RBI’s recent cut in the repo rate is a proactive step aimed at stimulating economic activity amid prevailing economic conditions. By encouraging banks to lower their lending rates, the central bank is promoting accessibility to affordable housing finance for both new and existing homeowners. The adjustments represent not only an immediate financial benefit for borrowers but also contribute to a favorable environment for housing market dynamics in the near future.
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