The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points, prompting several Indian banks to adjust their repo-linked lending rates (RLLR). This move is set to benefit home loan borrowers, as banks like Indian Bank, Punjab National Bank (PNB), and Bank of India have announced reductions in their lending rates.
The repo rate, a key policy tool used by the RBI, serves as a benchmark for most banks, consequently affecting the interest rates on loans and making borrowing more affordable for customers. Borrowers with loans tied to the RLLR can expect their interest rates to fluctuate with any changes in the repo rate, as mandated by an RBI circular from October 2019.
> Punjab National Bank has been proactive in passing on the benefits of the RBI’s decision to its customers. As of April 10, 2025, PNB has reduced its RLLR from 9.1% to 8.85%, which incorporates a basic spread (BSP) of 20 basis points.
According to their BSE filing, “The exchange is hereby informed that the bank (Punjab National Bank) has revised RLLR from 9.10% (including BSP of 20 bps) to 8.85% (including BSP of 20 bps) with effect from 10.04.2025. Further, there is no change in the existing MCLR and base rate.” The absence of adjustments in the marginal cost of funds-based lending rate (MCLR) ensures stable lending for customers who prefer this model.
> In line with RBI’s directive, the Bank of India has also revised its lending rates, reducing its repo-linked benchmark lending rate (RBLR) from 9.1% to 8.85%, effective April 9, 2025. According to their filing, “Effective RBLR from 9.1% to 8.85%, a decrease of 25 bps. The new rates are effective from April 9, 2025.” This measure aligns with the bank’s strategy to enhance accessibility and affordability for home loan borrowers amid the evolving monetary policy landscape.
> Indian Bank follows suit, announcing adjustments to its repo benchmark rate and repo-linked benchmark lending rates (RBLR), with the changes taking effect from April 11, 2025. The revision aligns with the 25 basis points reduction in the repo rate by the Monetary Policy Committee (MPC) of the RBI.
As per their statement, “In terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, we have to inform you that, in line with the decrease in REPO rate of 25 bps by the Monetary Policy Committee (MPC) of RBI, the bank has revised the REPO Benchmark Rate and Repo Linked Benchmark Lending Rates (RBLR). The revised rate as detailed below is effective from 11.04.2025 until the next review.”
The impact of these rate reductions varies between new and existing home loan borrowers. New borrowers will immediately benefit from the lower rates, while existing borrowers will see adjustments according to their interest rate reset cycles. The revised RLLR rates for these banks are expected to enhance borrowing affordability and are seen as a strategic response to the RBI’s policy changes aimed at stimulating economic growth by encouraging more borrowing through reduced lending costs.
CA Dr. Suresh Surana elaborated on the process of passing on repo rate cuts to borrowers. According to him, when the RBI reduces the repo rate, banks can benefit from lower borrowing costs. Ideally, these benefits should be passed on to customers. However, the actual transmission of these benefits is influenced by various factors, and the method of passing on the benefits has evolved over time.
How repo rates affect loans
When a home loan is directly tied to the repo rate, a 25 basis point decrease by the RBI should ideally result in a corresponding 25 basis point decrease in the loan’s interest rate. This could potentially lead to a reduction in the monthly installment amount (EMI) or allow the borrower to save on overall interest, depending on the repayment terms.
The speed and magnitude of this adjustment may vary. Loans connected to the repo rate typically exhibit faster and more transparent changes. However, some loans are still connected to the MCLR (Marginal Cost of Funds-based Lending Rate), which may not adjust as swiftly or by the same degree as repo-linked loans.
RLLR stands for Repo Linked Lending Rate and is revised periodically based on the Repo rate designated by the RBI. Each bank may have different rates for RLLR. As the full form suggests, RLLR refers to a loan rate that is linked to the repo rate.
The home loan interest rate fluctuates based on several factors such as the loan amount, risk groups, and loan-to-value ratio. When borrowing is tied to the RLLR interest rate, the interest rate on the loan will vary in response to changes in the repo rate.
The Repo Linked Lending Rate (RLLR) plays a crucial role in determining interest rates for loans, particularly home loans. It is essential for individuals seeking transparency in their loan agreements to understand how RLLR is calculated and its impact. Below, we break down the formula and key points related to RLLR:
Calculating RLLR Formula:
RLLR = Repo Rate + Spread
Repo Rate: This is the rate at which banks borrow funds from the Reserve Bank of India (RBI).
Spread: This refers to the additional percentage that the lending institution adds to cover its operational costs and profit margin.