Home Loan Rates Dip Below 8%, PSBs Lead in Passing on Repo Rate Cut Benefit

Public Sector Banks Pass on Full Repo Rate Cut While Private Lenders Lag Behind

Interest rates on new home loans in India have declined below the 8 percent mark following the Reserve Bank of India’s (RBI) cumulative 50 basis points (bps) reduction in the repo rate during its February and April monetary policy meetings. While public sector banks (PSBs) have swiftly passed on the benefits of the repo rate cut to both new and existing borrowers, several major private sector banks have not yet reflected the full transmission of the monetary easing in their lending rates.

Highlights

• RBI reduced the repo rate by a cumulative 50 bps (25 bps each in February and April 2025).

• Public sector banks have fully transmitted the rate cut to borrowers.

• Large private lenders like ICICI Bank and Axis Bank have not revised their home loan rates.

• Borrowers should verify if rate cuts have been passed on and consider refinancing options.

Repo-Linked Home Loans Now Below 8% at Leading PSBs

Public sector banks including Canara Bank, Bank of Maharashtra, Central Bank of India, and Union Bank of India are now offering new home loans at interest rates ranging from 7.80 percent to 7.85 percent. These banks have passed on the complete 50-bps repo cut benefit to both new and existing borrowers. Under the RBI’s 2019 guidelines, all retail floating rate loans sanctioned after October 1, 2019, must be linked to an external benchmark – typically the repo rate – ensuring direct transmission of policy rate changes.

Highlights

• Canara Bank leads with the lowest home loan rate at 7.80%.

• EMI on a ₹1 crore loan for 20 years is ₹82,404 at 7.80% interest.

• Indian Bank and Indian Overseas Bank offer rates starting at 7.90%.

• PSU lenders dominate the sub-8% rate space, signaling better policy transmission.

Private Banks Maintain Higher Spreads, Delay Transmission

In contrast, top private sector banks such as ICICI Bank and Axis Bank have not adjusted their home loan interest rates despite the RBI’s 50-bps repo rate cut. As per data from BankBazaar as of May 9, 2025, ICICI Bank continues to offer new home loans at 8.75 percent – the same rate it charged in January. Axis Bank and Kotak Mahindra Bank have also refrained from significant cuts, likely in an effort to preserve their net interest margins (NIMs).

Highlights

• ICICI Bank and Axis Bank offer new loans at 8.75%, unchanged since January.

• HDFC Bank reduced its rate by only 25 bps, now at 8.50%.

• Banks are adjusting spreads instead of revising base lending rates.

• Analysts expect private banks to follow suit with PSBs in due time.

Industry Observations: Spread Adjustments and Strategic Pricing

Experts point out that some banks are adjusting their lending spreads to offset the impact of repo rate cuts. Vipul Patel, Founder of MortgageWorld, noted that while repo-linked loans are meant to offer full transmission, banks often tweak the spread component to buffer against revenue losses. Adhil Shetty, CEO of BankBazaar, highlighted that public sector banks have led the way, while private banks may eventually align their rates to remain competitive.

Highlights

• Repo-linked loans offer automatic rate adjustments.

• Spread hikes by banks dilute the benefit of repo cuts for new borrowers.

• Private lenders may reduce rates in coming weeks to stay competitive.

• Existing borrowers should verify their effective rate post-cut.

Top Home Loan Rates and EMIs Across Banks (as of May 9, 2025)

Highlights

• PSBs dominate the lowest-rate offerings with full 50-bps cut transmission.

• EMIs vary significantly based on rate changes; difference of ₹6,000+ per month between best and worst offers.

• Private banks with unchanged rates continue to offer the highest EMIs.

• IDBI, HDFC, and Kotak offer only partial transmission of RBI cuts.

Borrower Action Points: Review, Compare, and Refinance If Needed

Financial experts advise home loan borrowers to proactively evaluate whether their lenders have passed on the full benefit of the repo rate cuts. Borrowers whose banks have not reduced rates as expected should first seek clarification from the lender. If the effective interest rate remains high, refinancing or balance transfer options should be considered, especially if there is a significant rate gap and considerable tenure remaining.

Highlights

• Borrowers should verify their current effective interest rate post-cut.

• If discrepancies persist, refinancing to a lower-rate bank may be beneficial.

• A 50-bps rate difference on ₹1 crore can save over ₹6 lakh across 20 years.

• Switch only after factoring in processing fees and other transfer costs.