Mumbai: Following the Reserve Bank of India’s (RBI) recent decision to cut the repo rate by 50 basis points, several nationalized banks have cut their lending rates with other banks likely to follow suit. Banks, namely Bank of Baroda, Punjab National Bank, Bank of India, and UCO Bank, have cut their repo-linked lending rate (RRLR) by a full 50 basis points, benefiting new as well as existing individuals and small businesses.
Repo rate is the rate at which the central bank lends short-term money to commercial banks. A lower repo rate means banks can borrow funds at a lower cost from the central bank and are expected to pass on the lower cost to the borrowers. With this cut, the RBI MPC has reduced rates by a cumulative 100 basis points in 2025 to boost fragile economic growth.
It is pertinent to note that while loans linked to repo rate i.e. repo linked lending rate (RRLR) takes immediate effect with most nationalised banks, a few lenders follow the policy of monthly reset as result, the impact of a cut in lending rate happens between the 5th and the 15th of the following month. Private and foreign banks follow the policy of quarterly reset thus your Equated Monthly Instalments (EMIs) will reduce only from the next quarter.
“When banks cut lending rates, by default they reduce the loan tenor and retain your original EMI which is best for a borrower. Assuming a person took a home loan of Rs 50 lakh for a 25-year period in January 2025 at 8.50 rate of interest, his EMI works out to be Rs 40261. With the RBI’s cumulative 100 basis points reduction, he will save a total 63 EMIs i.e close his loan 5 years earlier than scheduled date thus resulting in a substantial saving of Rs 25.11 lakh,” said Vipul Patel CEO and founder, MortagageWorld.in.
Bank of Baroda’s revised repo-linked lending rate (RLLR) now stands at 8.15 per cent compared to 8.65 per cent, while PNB’s and Bank of India’s RLLR has come down to 8.35 per cent. UCO Bank has reduced its RLLR to 8.30 percent and has also trimmed its marginal cost of fund-based lending rate (MCLR) by 10 basis points across tenors. Among private banks, HDFC Bank has lowered its MCLR across tenures by 10 basis points.
