Car, personal, home and biz loans to cost less as PSU banks slash rates

Business Standard

5 hours ago

In a swift move following the Reserve Bank of India's (RBI) 50 basis point (bps) repo rate cut, four public sector banks—Bank of Baroda, Punjab National Bank (PNB), Bank of India, and UCO Bank—have slashed their repo-linked lending rates (RLLR) by an equal measure. The cuts, effective from June 6 to June 9, are set to make home, personal, and business loans cheaper for millions of Indians.
Bank-wise Rate Reductions:
Bank of Baroda: RLLR reduced to 8.15% from June 7
Punjab National Bank: RLLR down to 8.35% from June 9
Bank of India: RLLR slashed to 8.35% from June 6
UCO Bank: RLLR lowered to 8.30%, with an additional 10 bps cut in MCLR
Private lenders such as HDFC Bank have also trimmed lending rates, albeit marginally, reflecting a wider industry trend triggered by the central bank's aggressive policy easing.
What triggered the rate cuts?
The RBI's June 2025 Monetary Policy announcement took markets by surprise as it cut the benchmark repo rate to 5.50%, citing persistent economic sluggishness and a need to stimulate credit growth. In a parallel move, the central bank also reduced the Cash Reserve Ratio (CRR) by 100 bps—from 4% to 3%—releasing an estimated ₹2.5 lakh crore into the banking system.
What this means for borrowers
The most immediate beneficiaries are existing borrowers with loans linked to the repo rate or external benchmarks. Home loan EMIs could fall by ₹300–₹600 per month on average, depending on loan size and tenure.
However, new borrowers may not enjoy the full benefit. Bank officials suggest they may widen the spread over the repo rate to protect margins, especially amid declining deposit rates and growing cost pressures.
Impact on savers and banks
While borrowers gain, fixed deposit (FD) holders face another blow. Several banks have already begun slashing FD rates, with reductions between 30 to 70 bps expected in the coming weeks.
Who benefits the most?
Existing floating-rate borrowers (e.g., home loans linked to external benchmarks) will see instant savings as banks adjust these in line with the reduced repo rate
New borrowers, however, may not get the full benefit because banks are expected to widen their spreads over the repo rate to protect profitability
As a result, older borrowers might benefit more than new ones.
Chirag Madia of Value Research explains what the rate cut means for your money:
For borrowers, the rate cut is good news. Loan EMIs are likely to head lower. But as always, there'll be a lag before banks pass on the benefit.
For savers, especially those relying on fixed deposits, the outlook isn't as rosy. With interest rates falling over 1 per cent since February, FD (fixed deposit) rates are set to drop further, not ideal for individuals, especially retirees, who depend on interest income.
What debt fund managers are watching
Bond experts think the RBI has frontloaded most of its support. Now that the stance is neutral, future moves will depend on how inflation and growth shape up.
Mahendra Kumar Jajoo, CIO – Fixed Income at Mirae Asset, said, 'The 10-year benchmark bond yield, which has already inched down to around 6.20 per cent, remained largely flat. Most reaction was seen in the shorter end of the curve with money market rates easing further, extending to the 1–3-year corporate bond segment.'
"For debt investors, short- to medium-duration funds are best placed to benefit in this phase. Equity investors may also find tailwinds from better consumption and corporate spending," added Madia.
What should fixed income investors do?
The short end of the bond market (1–5 years) is expected to do well because:
There's abundant liquidity (banks have more money to lend).
There's an attractive carry (higher yield compared to risk-free rate).
In simple terms: shorter-term corporate bonds are offering good returns for relatively low risk.If you're a conservative investor, short-term debt investments are now better positioned.
Longer-term bonds may offer stable but capped gains unless economic growth collapses.
"Investors with a 12–18 month investment horizon can look at corporate bond funds, as we expect corporate bond spreads to narrow owing to abundant liquidity and attractive carry. Investors with an investment horizon of 6–12 months can consider money market funds, as yields can continue to drift lower in the 1-year segment of the curve," said Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund.