RBI Slashes Repo Rate by 100 Basis Points in 2025, But Home Loan Relief May Be Delayed

In a strong push to revive economic momentum and make borrowing cheaper, the Reserve Bank of India (RBI) has slashed the repo rate by a cumulative 100 basis points (bps) in 2025. The move, spread across three Monetary Policy Committee (MPC) meetings, includes two modest 25 bps cuts followed by a sharper 50 bps reduction in the latest policy. While this should ideally lead to lower home loan EMIs, especially for those with floating-rate loans, the actual relief may be slower to materialize.

Despite the central bank’s clear signal, the journey from rate cut to reduced EMIs is not always smooth. Banks often take their time in passing on the benefits to borrowers, citing operational and cost-related constraints. As a result, many borrowers—especially new applicants and those with loans linked to older benchmarks—may find themselves waiting longer than expected for meaningful rate relief.

New Borrowers May Have to Wait

For those planning to take out a home loan soon, the recent repo rate cuts may not translate into immediate benefits. While public sector banks have responded more actively, reducing rates by up to 40 bps, the sharper 50 bps cut from the latest policy is yet to be fully reflected in lending rates across the board.

Private banks, meanwhile, have been more conservative—often choosing to increase the lending spread to protect margins. ICICI Bank, for instance, currently offers home loans ranging from 8.1% to 9.2%, which limits the visible impact of the repo rate drop.

Adhil Shetty, CEO of fintech platform BankBazaar, explains: “With the CRR being lowered, liquidity in the system should improve, aiding faster transmission. But new borrowers may need to wait a few days to a week—or even longer—for the full impact.”

Why the Delay?

One key reason lies in the type of lending benchmarks used by banks. Many home loans in India are still tied to the Marginal Cost of Funds-Based Lending Rate (MCLR) or the older Base Rate system. These are internal benchmarks based on each bank’s cost of funds and other operational factors. Because these aren’t directly linked to the RBI’s repo rate, any monetary policy shift takes time to filter through.

Raoul Kapoor, co-CEO at Andromeda Sales and Distribution, explains: “MCLR is influenced by a bank’s internal cost of borrowing. So even when the RBI cuts rates, MCLR may not immediately follow suit.”

What About Existing Borrowers?

For existing home loan customers, the impact of the RBI’s rate cuts depends heavily on the type of loan agreement in place. Borrowers still repaying loans based on the base rate or MCLR may not feel the benefit right away. These older benchmarks tend to lag in reflecting rate revisions.

In contrast, repo-linked loans—more widely adopted since 2019—are directly pegged to the RBI’s repo rate. These loans offer more transparent and quicker rate transmission, though even here, a reset clause may delay the rate revision by up to three months.

“If your loan is still under an older system like MCLR or base rate, this could be a good time to switch,” advises Shetty. “A refinance at 100 bps lower on a ₹25 lakh outstanding loan could save you nearly ₹4 lakh over the loan term. If you continue with your current EMI, your total interest savings could be even higher.”

Transmission Still a Work in Progress

The RBI has also reduced the Cash Reserve Ratio (CRR) by 100 bps, bringing it down to 4%. This move is designed to enhance liquidity and encourage banks to lend more actively. It’s expected to nudge banks to pass on the benefits more rapidly, though the impact may take a few days or more to show up, particularly for new borrowers.

Banks like Bank of Baroda, Punjab National Bank, Canara Bank, and ICICI Bank have already trimmed their repo-linked lending rates by as much as 50 bps. For borrowers with such loans, this could mean significant savings—up to ₹14,000 annually on a ₹30 lakh home loan, or ₹5,000–6,000 on a ₹10 lakh MSME loan.

Yet, the broader picture shows that rate transmission remains patchy and uneven across lenders. Private banks, in particular, are seen adjusting their spread margins to maintain profitability, which dulls the overall effect of repo rate cuts.