Home loan interest: Rates dip below 8%, PSBs faster in passing on repo rate cut benefit

Existing borrowers should verify if they've received the full benefit of the repo rate cut from their lender.

Interest rates on new home loans have dipped below 8 percent after the Reserve Bank of India’s (RBI) repo rate cut of 25 basis points on April 9.

Public sector banks have already passed on the benefit to their existing as well as new customers. All retail floating rate loans sanctioned after October 1, 2019, are linked to an external benchmark, which is the repo rate, for most banks. As per the RBI, all banks have to pass on the repo rate changes to existing borrowers.

Private banks trail in passing rate cut benefits 

After the consecutive 25-bps repo rate cut in the February and April monetary policy announcements, some banks have not transmitted the entire benefit to new borrowers, choosing to adjust the spread over the repo rate instead.

“Some lenders have chosen to increase the spread, thereby diluting the impact of the repo rate reduction for new home loan contracts. However, as per RBI rules, banks have to pass on the entire benefit to existing borrowers,” says Vipul Patel, Founder, MortgageWorld, a home loan advisory firm.

For example, ICICI Bank’s lowest rate on offer for new borrowers was 8.75 percent in January 2025 and has remained the same despite the 50-bps repo reduction in February and April, as per BankBazaar data as on May 9, 2025.

Likewise, Axis Bank has not revised its fresh home loan rates. HDFC Bank has reduced interest rate by 25 basis points to 8.50 percent from 8.75 percent in January 2025.

“Banks adjust their interest rates based on their policies and business priorities. Government banks have taken the lead in slashing their rates,” says Adhil Shetty, CEO, BankBazaar.com, an online financial marketplace that helps people compare and choose financial products such as loans, insurance, credit cards, fixed deposits, savings accounts and mutual funds.

“Several public sector banks have fully passed on the 50-bps rate cut to borrowers, but private banks haven't. It is likely to protect their net interest margins (NIMs),” says Anuj Kesarwani, Founder of Zenith Finserve, a financial advisory firm.

According to Shetty, however, private banks, too, could follow suit soon. “We’ve seen in the past that all large lenders tend to group around the same rates. We expect private banks to be more competitively priced a few weeks into the new financial year,” he says.

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Banks offering the lowest rates

Data from Bankbazaar.com shows that for a home loan of Rs 1 crore for a tenure of 20 years, banks are offering interest rates ranging between 7.80 percent and 9.35 percent (data as on May 9, 2025, from bank websites). These rates are indicative and may vary based on individual factors like credit score, income, and other criteria.

Canara Bank

Starting at 7.80 percent, the home loan interest rate offered by Canara Bank is the lowest among all banks. It has passed on the 50-basis repo rate cut benefit to its existing as well as new borrowers. The equated monthly installment (EMI) on a Rs 1 crore loan with a 20-year tenure works out to Rs 82,404.

Bank of Maharashtra, Central Bank of India and Union Bank of India

These three banks have transmitted the 50-bps repo rate cut in February and April to all their borrowers. The interest rate is starting at 7.85 percent. The EMI on a Rs 1-crore loan, with a 20-year tenure, will work out to Rs 82,713.

Indian Bank and Indian Overseas Bank

These two banks levy interest rates starting from 7.90 percent. Both have passed on the 50-bps repo rate cut benefit to all their home loan borrowers. The EMI on a Rs 1-crore loan, with a 20-year tenure, works out to Rs 83,023.

UCO Bank, Bank of Baroda, Bank of India, Punjab National Bank and State Bank of India

These five banks levy interest rates starting from 8 percent. They have transferred 30 to 50 basis repo rate cut benefit to all their home loan borrowers. The EMI on a Rs 1 crore loan, with a 20-year tenure, works out to Rs 83,644.

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What should home loan borrowers do?

Existing borrowers should verify whether they've received the full benefit of the repo rate cut from their lender. “If not, they should contact their bank to determine the effective date. If issues persist, consider transferring the loan to a bank offering lower rates, factoring in switching costs,” says Kesarwani.

Compare your lender’s rate with those from other lenders as also your current lender’s repo-linked lending rate (RLLR) loan, based on your income and credit profile.

“If the difference is sizeable – say, 50 bps or more – and if half their loan tenor and balance remain, they should strongly consider a refinance to a repo-linked loan from a bank. The advantage these loans have over prime lending rate (PLR), marginal cost of funds-based lending rate (MCLR), and base rate-linked loans is that the rate cuts are free, immediate, and automatic,” says Shetty.