Big relief for home loan borrowers as RBI cuts repo rate by 25 bps

Banks likely to lower lending rates for home, auto and business loans, according to one analyst

The Reserve Bank of India (RBI) on Friday reduced the repo rate (RR) by 25 basis points (bps) to 6.25 per cent from 6.5 per cent following its first monetary policy review of the year. This policy decision marks the first Monetary Policy Committee (MPC) meeting chaired by new RBI Governor Sanjay Malhotra.

 

"This decision is expected to bring relief to loan borrowers, as banks are likely to lower lending rates for home loans, auto loans, and business credit. Lower borrowing costs will encourage spending and investment, providing a much-needed boost to economic activity," said Adhil Shetty, chief executive officer (CEO), BankBazaar.com.

 

 

"This move is expected to drive demand for housing, boosting market activity and encouraging more people to invest in real estate. It also enhances confidence among both buyers and developers, leading to a stronger and more dynamic sector," said Manju Yagnik, vice-chairperson of Nahar Group and senior vice-president of NAREDCO - Maharashtra.

 

"This supportive monetary policy was imperative, especially after the recent 50-basis-point reduction in the Cash Reserve Ratio (CRR), which has already injected significant liquidity into the banking system," said Boman Irani, president, CREDAI National.

 

The move to cut the repo rate comes a week after the Budget for 2025-26 proposed making normal income up to Rs 12 lakh tax-free under the new tax regime for the financial year 2025-26.

 

How will this rate cut decision shape home loans?

 

Shetty explained:

 

Assume you took a loan of Rs 50 lakh one year ago at 9 per cent for 20 years. In this case, the total EMI paid over the duration of the loan comes to approximately Rs 58 lakh. A repo rate cut means that the entire reduction is transmitted. Typically, the bank will maintain your EMI. This means that you save on the total interest you repay as well as reduce your tenor. So, in this case, your loan is at 9% in the first year and reduced after that in proportion to the rate cut.

 

If the rate cut is for 50 basis points, your loan is reset to 8.5 per cent. Your overall interest will reduce to approximately Rs 50 lakh, a savings of Rs 8 lakh. Your overall tenor will reduce to 222 months, meaning your loan will end 18 months earlier. If the rate cut is for 25 basis points, your tenor reduces by 10 months to 230 months while your interest comes down to Rs 53.6 lakh, a savings of Rs 4.4 lakh over the duration of your loan.

 

Interest rate: 9 per cent

Interest outflow: Rs 57,96,711.47

Interest savings: Rs 0.00

Total tenor: 240 months

Tenor savings: 0 months

 

Interest rate: 8.75 per cent

Interest outflow: Rs 53,60,243.80

Interest savings: Rs 4,36,467.67

Total tenor: 230 months

Tenor savings: 10 months

 

Interest rate: 8.50 per cent

Interest outflow: Rs 49,77,144.17

Interest savings: Rs 8,19,567.30

Total tenor: 222 months

Tenor savings: 18 months

 

Take a look at 20 banks/financial institutes that offer the lowest interest rates for amounts above Rs 30 lakh and up to Rs 75 lakh, based on data from Paisabazaar.com:

 

1. Union Bank of India: 8.35 per cent - 10.90 per cent

2. Bank of India: 8.35 per cent - 10.85 per cent

3. Bank of Maharashtra: 8.35 per cent - 11.15 per cent

4. Punjab National Bank: 8.40 per cent - 10.15 per cent

5. Indian Bank: 8.40 per cent - 10.30 per cent

6. Indian Overseas Bank: 8.40 per cent - 10.60 per cent

7. Bank of Baroda: 8.40 per cent - 10.65 per cent

8. Canara Bank: 8.45 per cent - 11.25 per cent

9. UCO Bank: 8.45 per cent - 10.30 per cent

10. Bajaj Housing Finance: 8.50 per cent onwards

11. State Bank of India: 8.50 per cent - 9.85 per cent

12. Punjab and Sind Bank: 8.50 per cent - 10 per cent

13. HSBC Bank: 8.50 per cent onwards

14. City Union Bank: 8.50 per cent - 10 per cent

15. LIC Housing Finance: 8.50 per cent - 10.55 per cent

16. PNB Housing Finance: 8.50 per cent - 14.50 per cent

17. Godrej Housing Finance: 8.55 per cent onwards

18. Tamilnad Mercantile Bank: 8.60 per cent - 9.95 per cent

19. Aditya Birla Capital: 8.60 per cent onwards

20. South Indian Bank: 8.70 per cent - 11.70 per cent