Following the RBI Repo Cut, Banks Begin to Lower Loan Rates

After the RBI lowered the repo rate by 25 basis points to 6% on April 9, a number of banks adjusted their external benchmark lending rates. With effect from April 11, Indian Bank said that it will lower its repo-linked benchmark lending rate (RBLR) from 9.05% to 8.7%. With effect from April 10, PNB reduced its repo-linked lending rate (RLLR) from 9.1% to 8.85%. With effect from April 9, Bank of India has changed its RBLR from 9.1% to 8.85%. As of April 10th, UCO Bank has lowered its lending rate to 8.8%.

The RBI declared that it would keep excess liquidity in the system after the monetary policy committee unanimously decided to lower interest rates. Further, the committee also changed the policy stance to one that is more accommodating. All floating-rate loans must be linked to an external benchmark by banks, per RBI regulations. It is anticipated that the repo rate cut will lower lending rates, but because the cost of capital has not decreased as quickly, banks' net interest margins may be compressed.

Move Will Benefit Both Existing and New Borrowers

Both new and current borrowers of these banks will profit from this decision. Other banks are expected to make similar statements soon. Following the RBI's reduction in the short-term lending rate (repo rate), these public sector banks verified the modification in loan rates in separate notifications to the stock markets.

The RBI Governor also declared that the monetary policy stance would shift from neutral to accommodating. Because of the shift in policy, house loan borrowers may expect further reductions in repo rates and, as a result, reduced home loan interest rates. The RBI had not lowered the repo rate in five years, the previous time being in the February policy.

RBI May Further Cut the Rate

According to the State Bank of India's Ecowrap report, a significant drop in the cost of food and drink caused India's CPI inflation to drop to a 7-month low of 3.6% in February 2025. Additionally, according to the research, core inflation may range between 4.2% and 4.4%, while inflation for FY26 is anticipated to be between 4.0% and 4.2%. In April and August of 2025, the central bank may lower interest rates one after the other, with a minimum 75 basis point cumulative rate reduction anticipated. The United States recently levied a 26% tariff on imports from India. According to media reports, this will cut India's GDP growth for FY 2025–2026 by 20–40 basis points, possibly bringing it down from the RBI's initial prediction of 6.7% to about 6.1%.

In order to combat economic pressure, this might encourage the RBI to further reduce interest rates. According to DK Srivastava, Chief Policy Advisor at EY India, the RBI's decision to adopt an accommodative attitude and reduce the policy rate by 25 basis points for the second consecutive time shows that it is prepared to protect India's chances for GDP development. It is anticipated that the RBI would continue the downward rate cycle by lowering the repo rate by 25 basis points each over the course of the following three rounds, bringing it down to 5.25%.