Home Loans Now Below 8%: Public Sector Banks Lead as RBI’s Rate Cut Spurs Affordable Housing
Home Loans Now Below 8%: Public Sector Banks Lead as RBI's Rate Cut Spurs Affordable Housing
With rates dipping below 8%, public sector banks are leading the way in passing on RBI’s repo rate cut, private banks lag behind.
Interest rates on new home loans have fallen below 8% after the Reserve Bank of India’s (RBI) 25-basis-point repo rate cut on April 9. Public sector banks (PSBs) have swiftly passed on the benefit to both existing and new borrowers. However, many private sector banks are yet to follow suit.
Repo Rate-Linked Home Loans
Since October 1, 2019, most retail floating-rate loans are linked to an external benchmark, usually the RBI’s repo rate. As per RBI guidelines, all banks must pass on changes in the repo rate to borrowers. While public banks have promptly complied, several private banks have been slow to adjust.
Private Banks Yet to Pass on Full Benefit
Despite a cumulative 50-basis-point cut in February and April 2025, leading private banks have not fully transmitted the reduction to customers:
- ICICI Bank: Home loan rate remains unchanged at 8.75% (as of January 2025).
- Axis Bank: No recent revision in new home loan rates.
- HDFC Bank: Reduced its rate by 25 basis points, from 8.75% to 8.50%.
“Government banks have taken the lead in slashing their rates,” says Adhil Shetty, CEO of BankBazaar.com. Private banks are possibly holding back to protect their net interest margins (NIMs), adds Anuj Kesarwani, Founder of Zenith Finserve.
However, experts believe private lenders may revise rates soon. “Large lenders usually align their rates over time,” Shetty notes.
Home Loan Rate Comparison (as of May 9, 2025)
For a home loan of ₹1 crore with a tenure of 20 years, interest rates range from 7.80% to 9.35%, depending on the lender and borrower profile. These are the current top banks offering competitive rates:
| Bank | Interest Rate |
|---|---|
| Canara Bank | 7.80% |
| Bank of Maharashtra | 7.85% |
| Central Bank of India | 7.85% |
| Union Bank of India | 7.85% |
| Indian Bank | 7.90% |
| Indian Overseas Bank | 7.90% |
Canara Bank offers the lowest rate at 7.80%, translating to a monthly EMI of ₹82,404 on a ₹1 crore loan over 20 years.
Banks like Bank of Maharashtra, Central Bank, and Union Bank, with rates at 7.85%, offer an EMI of ₹82,713 for the same loan amount and tenure.
Why a Lower Interest Rate Matters
- Lower EMI: Reduces your monthly financial burden.
- Higher Savings: Interest outflow over the loan tenure is significantly reduced.
- Preserves Savings: Ensures your emergency funds remain intact even after home purchase.
If you’re planning to buy a home, this is a favourable time to act. With multiple PSBs offering sub-8% interest rates, borrowers have more affordable options than ever. However, do assess factors like your credit score, income, and loan tenure before making a decision, as these can influence your final rate.
Disclaimer:
Rates are as of May 9, 2025, and may change. Check with lenders for latest terms. This is not financial advice; consult a professional before taking a loan.
