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Lower Interest Rates: How RBI’s April 2025 Repo-Rate Cut Is Lightening Borrowers’ EMIs

Submitted by admin on May 15th, 2025

This good news came on 9th April 2025 after the Reserve Bank of India’s Monetary Policy Committee cut the policy repo rate by 25 basis points, reducing it to 6.00 percent. The action, its second reduction in the present easing round, was a way of strengthening the growth while the inflation continued the disinflationary route.

Since all scheduled commercial banks price a big proportion of their floating rate retail loans off the Repo rate (either directly through external-benchmarks linked loans or indirectly through internal banks’ benchmarks) then the decision paved the way for cheaper credits throughout the system.

In a matter of weeks, leading lenders were passing the advantage to the borrowers in the form of a cut in their Marginal Cost of Funds-based Lending Rates (MCLR). HDFC Bank, India’s largest private-sector banker, took the attack: its effective 7 May 2025, it adjusted downwards by 10 bps the overnight and one-month MCLR and by 15 bps the three-month tenor and put that down at 9.05 percent. 6 Month and 1 Year buckets now have a new value of 9.10 percent and 9.20 percent, respectively.

Consumers are to look out for the headline figure which is Equated Monthly Instalment (EMI). A 15-basis point cut cannot sound small because on a ₹30 lack, 20-year home-loan which was initially priced at 9.20 percent the EMI will fall by approximately ₹270 a month.

Over the complete tenure, that is equivalent to a saving of interest almost amounting to ₹65,000. The perk comes automatically for borrowers who are already connected to the floating MCLR slabs or external benchmarks that are revised after every three months.

Those who are trapped in the older base-rate loan, however, will have to go to their lender to designate a new benchmark – usually for a nominal administrative fee that can be recovered quickly through the following savings in EMI.

Beyond obvious relief for household cash-flows, a lower MCLR environment can influence borrowing behaviour in subtler ways. First-time home buyers may advance purchase decisions as affordability improves, providing a fillip to the real-estate market. Personal-loan applicants—facing rates that now start below 11 percent at large private banks—could find it cheaper to consolidate high-cost credit-card dues or medical bills into a structured instalment product.

Still, prospective borrowers should keep two caveats in mind.

One, MCLR-based loans reprice only at preset “reset dates” (typically every six or 12 months). If your reset is due in, say, December, the benefit will appear only then unless you refinance to an external-benchmark product, which adjusts more quickly.

Two, shorter-tenor MCLR cuts do not always translate proportionately into the one-year MCLR, the benchmark for most retail loans. Monitor your loan document to understand which slab governs your EMI.

Finally, while falling rates are a boon, disciplined repayment remains paramount. Use the monthly savings either to prepay principal—thereby shortening tenor and slashing total interest outgo—or to bolster an emergency fund. Both strategies improve your credit profile and enhance eligibility for future borrowing.