New Delhi— Lending rates in India are expected to decline by approximately 30 basis points following the Reserve Bank of India’s recent policy rate cut, according to a new report from SBI Research.
The most immediate impact will be seen in loans tied to the External Benchmark Lending Rate (EBLR), which now accounts for about 60% of all loans issued by Scheduled Commercial Banks (SCBs). Due to this large share, the effect of the policy cut is expected to be passed on swiftly to borrowers, making credit more affordable.
“This move is designed to lower borrowing costs and stimulate demand across the economy,” the report stated.
However, the rate cut may also compress banks’ profit margins. To offset this, the RBI has simultaneously reduced the Cash Reserve Ratio (CRR), a step aimed at easing the cost of funds for banks. While the CRR cut won’t directly affect deposit or lending rates, SBI estimates it could slightly boost banks’ Net Interest Margins (NIM) by 3 to 5 basis points.
The report also highlights potential liquidity improvements in the banking sector. By reducing the base money (M0) and increasing the money multiplier by 20 to 30 basis points, the CRR cut is expected to support stronger credit flow into the economy.
In response to the evolving rate environment, banks have already begun lowering fixed deposit (FD) rates. Since February 2025, FD rates have dropped by 30 to 70 basis points, and SBI anticipates further reductions in the coming months.
While lower interest rates benefit borrowers, SBI cautioned that banks will likely continue to face margin pressure. “The exact impact will vary by institution, but overall, profit margins are expected to shrink,” the report noted.
Looking ahead, the outlook for further rate cuts appears limited. However, a substantial profit transfer from the RBI to the government has strengthened the government’s fiscal position, potentially reducing the need for near-term monetary policy action.
For now, SBI expects the central bank to hold off on additional policy rate changes in the next quarter. (Source: IANS)
