State Bank of India (SBI), Bank of Baroda, and HDFC Bank have recently announced cuts in their interest rates. The purpose of these reductions is to lower the cost of borrowing, thereby boosting consumer spending and investment, and stimulating demand in the economy.
The Reserve Bank of India (RBI) has clearly signaled to banks that the recent cuts in policy interest rates should be directly and immediately passed on to the common customers. This was prominently highlighted in an article published in the RBI's June 2025 bulletin. The RBI has told banks that after a 0.50 percent cut in the repo rate, they should similarly and swiftly reduce the interest rates on loans so that customers can benefit.
The financial environment is currently favorable
According to the June bulletin, the country's current financial situation is entirely conducive to passing on the repo rate cuts to customers. The article in the bulletin states that market conditions remain positive for the effective transmission of rate cuts. It also mentions that the benefit of the rate cuts made by banks between February and April 2025 is now gradually reaching customers. Several major banks, such as State Bank of India, Bank of Baroda, and HDFC Bank, reduced their loan rates within days of the repo rate cut.
Half a percent cut in Repo Rate
The RBI's Monetary Policy Committee (MPC) decided to cut the repo rate by 0.50 percent in the June 2025 review meeting. Under this, the repo rate was reduced to 6.00 percent. The repo rate is the rate at which the RBI provides short-term loans to banks. A decrease in the repo rate means that it becomes cheaper for banks to borrow money from the RBI, and this affects the interest rates on loans given to customers.
Banks quickly reduced rates
Following the RBI's appeal and the monetary policy decision, several banks have quickly cut their loan rates. A decrease in interest rates was particularly observed on loans linked to the Repo Linked Lending Rate (RLLR) or External Benchmark Linked Rate (EBLR). Banks such as Bank of Baroda and HDFC Bank reduced the rates on their loan products by almost the same amount within a few days of the repo rate cut on June 6.
1 percent cut in CRR as well
Along with the repo rate, the RBI also decided to cut the Cash Reserve Ratio (CRR) by 100 basis points, i.e., 1 percent. CRR is the amount that banks have to keep with the RBI as a certain percentage of their total deposits. According to the June bulletin, this cut will be implemented in a phased manner and its effect will be visible on the banking system by December 2025. This could bring about an additional liquidity of around Rs 2.5 lakh crore into the system.
Impact on deposit rates as well
Not only in loan rates, but changes have also been seen in deposit rates. Between February and April 2025, a decrease was recorded in both new and existing rates on domestic term deposits. According to the data, the average interest rate on new term deposits fell by 27 basis points and the rate on outstanding deposits fell by 1 basis point during this period. This makes it clear that there is a broad change happening in the banking system on the interest rate front.
Government and RBI's strictness
The RBI's advice to banks also indicates that regulatory bodies are now increasing monitoring and strictness on the behavior of banks. Not passing on the benefit of the repo rate cut to customers on time has been a major issue, which the RBI is no longer ignoring. This is the reason that it has been explicitly stated this time that the benefit of the cut should be given to the customers immediately.
