Banks Respond to RBI’s Repo Rate Cut: Existing Borrowers Benefit Sooner

In a swift reaction to the Reserve Bank of India’s (RBI) unexpected 50 basis point reduction in the repo rate to 5.5%, several public sector banks (PSBs) have promptly adjusted their lending rates.This move aims to make loans more affordable, particularly benefiting existing borrowers with floating-rate loans.

Public Sector Banks Lead the Way

Major PSBs have taken the lead in implementing rate cuts:

• Bank of Baroda: Reduced its Repo-Linked Lending Rate (RLLR) from 8.65% to 8.15%, effective June 7.

• Punjab National Bank (PNB): Lowered its RLLR from 8.85% to 8.35%, starting June 9.

• Bank of India: Cut its RLLR from 8.85% to 8.35%, effective June 6.

• UCO Bank: Reduced its RLLR from 8.80% to 8.30% and also trimmed its Marginal Cost of Funds Based Lending Rate (MCLR) by 10 basis points across all tenors.

These adjustments are expected to make home, personal, and business loans more affordable for borrowers.

Private Sector Banks Follow Suit

Private sector banks are also responding, albeit more cautiously:

• HDFC Bank: Reduced its MCLR by 10 basis points across all tenures, effective June 7.

• Karur Vysya Bank: Lowered its six-month MCLR by 10 basis points and one-year MCLR by 20 basis points, effective June 7.

However, other major private lenders such as ICICI Bank and Axis Bank have yet to announce any rate cuts.

Impact on Borrowers

Existing borrowers with floating-rate loans will see an immediate reduction in their interest rates, leading to lower Equated Monthly Installments (EMIs) and overall interest payments. This is due to the automatic linkage of their loan rates to the RBI’s repo rate.

New borrowers, however, may not experience the full benefit of the rate cut. Banks are likely to adjust their spreads—the margin added to the benchmark rate—to maintain profitability, which could offset the impact of the reduced repo rate.

The RBI’s recent repo rate cut has prompted both public and private sector banks to lower their lending rates, providing quicker relief to existing borrowers. While new borrowers may see some benefit, the extent of the reduction will depend on individual banks’ adjustments to their lending spreads.