Banks Start Cutting Lending Rate After RBI’s Repo Rate Cut

This move will lower borrowing costs for customers with loans linked to RBLR, such as home loans and business loans. Customers may benefit from reduced EMIs or shorter loan tenure

In an immediate follow up of the 25 bsp repo rate cut by Reserve Bank of India (RBI) on April 9, banks have started cutting lending rates and thereby pass on the benefit of the rate cut directly to their borrowers.

While Indian Bank was the first lender to do so, other lenders are also on their way to go for the rate cut.

This is in contrast to RBI cut repo rate by 25 bsp in February, when no bank came forward to pass on the benefit to their customers.

A source in Canara Bank revealed on the condition of anonymity that the bank may also go for rate cut post its Assets and Liability Committee (ALCO) meet in the near future.

The Asset Liability Management Committee (ALCO) of the state-run lender, Indian Overseas Bank, in its meeting held on April 11 has decided to pass on the rate cut to the customers by reducing the Repo Linked Lending Rate (RLLR) of the Bank by 25 basis points to 8.85 per cent effective from April 12.

Thus, the lending rates may come down to 50 basis points as RBI is also likely to go for repo rate cut by 50 basis points by the fiscal-end.

Indian Bank announced a reduction in repo-linked benchmark lending rate from 9.05 per cent to 8.70 per cent applicable on its assets portfolio, following the Reserve Bank of India’s announcement cutting the repo rate by 25 basis points, from 6.25 per cent to 6.00 per cent, in the latest Monetary Policy Committee (MPC) meeting. The revised lending rates will be effective from April 11.

The RBLR has been reduced by 0.35 per cent (35 basis points), directly reflecting the decrease in the RBI’s repo rate. This move will lower borrowing costs for customers with loans linked to RBLR, such as home loans and business loans. Depending on their loan terms, customers may benefit from reduced EMIs or a shorter loan tenure.

Talking to Bizz Buzz, Madhavan Kutty, chief economist, Canara Bank, says, “RBI will ensure surplus liquidity of Rs. 2.3 lakh crore. So transmission of policy rate cuts will now be faster.”

It is not just lenders but even NBFCs are also mulling to reduce their lending rates accordingly.

Sachin Pillai, Managing Director and Chief Executive Officer, Hinduja Leyland Finance, says, “The RBI’s decision to reduce the policy repo rate by 25 basis points is a welcome move in the current environment.”

Adding further, he said, “It opens up space for NBFCs like us to reduce borrowing costs and pass on the benefits to end customers in vehicle financing, affordable housing finance and SME financing where credit sensitivity remains high”.