RBI Rate Cut Sets Stage For Home Loans To Hit Post-Pandemic Lows

Home loan borrowers may soon benefit from some of the lowest interest rates seen since the COVID pandemic.

The Reserve Bank of India’s Monetary Policy Committee has cut the repo rate by 25 basis points, bringing it down to 5.25 per cent. This reduction is expected to push housing loan rates to levels last available briefly during the lockdown years.

Several public sector lenders, including Union Bank of India, Bank of India, Bank of Maharashtra and Indian Overseas Bank, currently offer home loans at around 7.35 per cent.

With the benchmark rate now reduced, these loans are likely to fall to approximately 7.1 per cent.

For a borrower servicing a ₹1 crore loan over 15 years, the change translates into an EMI drop of nearly ₹1,440 per month.

Banks Face Margin Pressure; NBFCs Gain Instant Relief

Bankers caution that such low lending rates for new borrowers will require a significant reduction in deposit rates or a revision of the spread over the benchmark. If banks cut spreads, newcomers may end up paying more interest than existing floating-rate customers.

The immediate winners, however, are non-banking finance companies. The RBI’s continued neutral stance, the ₹1 lakh crore OMO purchase announcement, and lower funding costs will sharply improve liquidity.

“This policy is a significant enabler, particularly for last-mile financiers,” said Umesh Revankar, Executive Vice-Chairman of Shriram Finance.

He noted that improved liquidity would help rate transmission reach small truck operators, rural entrepreneurs, and MSMEs, sectors that fuel India’s 8.2 per cent growth momentum.

As lending rates soften, banks will focus more on granular credit, particularly MSME and retail loans that offer higher returns. Large corporates continue to depend on equity and bond markets for funding, reducing their reliance on bank credit.

Despite chasing higher-yielding portfolios, lenders remain cautious. RBI data shows banks gradually pivoting to secured lending, such as gold and vehicle loans, while reducing exposure to unsecured personal credit amid concerns over potential defaults.

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