Transparent rate communication is key as repo-linked loans become norm

Mumbai, June 29

The Reserve Bank of India’s Monetary Policy Committee (MPC) recently slashed the repo rate by 50 basis points to 5.5 per cent, marking the third consecutive rate cut this year.

As a result, most banks have adjusted their repo-linked external benchmark-based lending rates (EBLRs) and marginal cost of funds-based lending rates (MCLR), effectively making loans cheaper for borrowers. A reduction in the repo rate typically translates into lower EMIs for both retail and corporate borrowers.

According to RBI data, over 47 per cent of outstanding home loans in India are now linked to external benchmarks, primarily the repo rate, making them highly sensitive to policy changes. While these cuts should offer relief, they’ve also highlighted a persistent challenge—borrowers often don’t fully understand how policy rate changes translate into their loan repayments.

Talking to Bizz Buzz, Sumit Sharma, Founder of Radian Finserv, an NBFC focused on MSME and secured lending says, “We’ve seen increased inbound queries from borrowers asking why their monthly instalments have gone up or down even when they didn’t opt for a new loan. This points to a much larger issue—borrowers are still in the dark about how rate transmission works.”

While the RBI mandates transparent lending practices, the actual comprehension at the borrower level remains limited. The recent rate cuts have further exposed this gap: customers are being impacted in real time but are often not equipped with the knowledge to anticipate or interpret these changes.

Surender Kumar, CTO at iMoney Pay, says, “Many borrowers don’t even know if a rate cut has been passed on to them. The confusing jargon—EBR, RLLR, MCLR—only adds to the chaos, especially for borrowers on older regimes who often need to fill forms, visit branches, and pay fees just to benefit from a rate cut.”

Lenders should simply show the current effective interest rate clearly in their apps or statements—with a transparent breakup. That alone could make a big difference in borrower confidence, he added.

Companies for instance, have rolled out multilingual EMI simulators and app-based alert systems to help borrowers visualise how a 50-bps repo rate change could affect their monthly outgo. Similarly, other NBFC offers a floating-rate loan tracker that notifies customers of policy rate changes within 24 hours of the RBI announcement.

NBFCs that lead with clarity—not just credit—are likely to earn long-term borrower loyalty in a repo-linked economy.

EoM.