RBI Cut the Repo Rate by 1.25 Points. Why Did New Loan Rates Fall Only 0.93?

Between February 2025 and March 2026 the RBI cut its repo rate by 125 basis points (1.25 percentage points) in total. A basis point is one hundredth of a percentage point.

Many borrowers noticed that loan rates did not fall by anything like 1.25 points. An RBI Bulletin article published on 23 October 2026 looks at exactly this, using data for scheduled commercial banks.

The article looks at the average interest rate on new rupee loans sanctioned by banks, called the weighted average lending rate (WALR). Over the period above, that average fell by 93 basis points against the 125 point repo cut.

The authors then split the 93 into two parts:

Banks changing their rates: 80 basis points. This is how much lower the average would be if every kind of loan had kept the same share as in January 2025, and only the rates had moved.

A shift in the mix of loans: 13 basis points. New lending moved towards segments and banks that charge less. That pulled the average down further without any bank changing a rate.

So the fall in the headline figure was larger than the fall in banks' own rates.

When the RBI raised the repo rate by 250 basis points (May 2022 to January 2025), the average new-loan rate rose by 181 basis points. Banks' own rate changes added 191, and a shift in the mix took 10 off.

Dividing by the repo move, by our arithmetic: on the way up, banks' own rates moved about 76% as much as the repo rate (191 of 250). On the way down they moved about 64% as much (80 of 125). The headline averages looked closer to each other (about 72% and 74%) because the mix of loans pulled in different directions in the two periods.

This is a comparison of averages across all banks and loan types. It does not show what any single bank did.

The article gives an example. New lending in India peaks at the end of each quarter, especially in March. In the weeks after, banks lean towards lower-cost business such as working capital renewals and short-term loans to highly rated borrowers. The article says the drop in the average rate in June 2025 was mainly this return to the usual pattern after the financial year, not rate cuts aimed at borrowers.

It also found that the effect differed by loan type. For housing, education, rupee export credit and MSME loans, new lending moved towards banks with lower rates, which added to the fall in the average. For large industry, trade and professional services it moved the other way and offset part of the fall.

It is about new loans. The article's own figures are for loans sanctioned in the period. It says the mix of loans already outstanding changes slowly. It does not measure what happened to the rate on your existing loan.

It is an average. Your rate depends on your lender, the benchmark your loan is linked to, your spread and your credit profile.

It is research, not a rule. The authors' views are theirs, not the RBI's. Nothing here changes what lenders must do for borrowers.

If you have a floating-rate loan, compare your current rate on your latest statement with the benchmark it is linked to plus your lender's spread. Our article on how your EMI moves when the repo rate changes explains the three-month reset rule and the choice between a lower EMI and a shorter tenure.

If you are taking a new loan, the article is a reminder that rates differ between banks and loan types, and that new lending moved towards cheaper banks in several categories. Ask for the rate and the spread in writing from more than one lender before you decide.

Our EMI calculator shows what a difference of even 0.25 percentage points does to the total interest on your loan. FinResp analyses. You decide.