Why your EMI hasn’t dropped despite RBI’s rate cuts

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The Reserve Bank of India (RBI) often tweaks the repo rate to influence lending costs, but if you're wondering why your loan EMI hasn't dropped even after a rate cut, you're not alone. Many borrowers expect immediate relief, but it doesn’t always happen. While banks are supposed to pass on the benefit of lower rates to consumers, there’s often a lag—or in some cases, no change at all—due to how the loan is structured.

Why your bank may not have passed it on

The main reason could lie in your loan’s interest rate type. If you have a fixed-rate loan, the rate doesn’t change with RBI’s moves. Even for floating rate loans, the transmission of rate cuts depends on the benchmark used. Since October 2019, most floating rate loans are linked to external benchmarks like the RBI’s repo rate. But older loans might still be tied to MCLR (Marginal Cost of Funds Based Lending Rate) or base rate systems, which are slower to reflect policy changes.

Banks also factor in credit risk premiums, operational costs, and their own cost of funds, which may dilute or delay the rate cut benefit to you.

What you can do to reduce your EMI

If your EMI hasn’t dropped, there are steps you can take. First, find out what type of loan you have—whether it’s fixed, MCLR-linked, or repo rate-linked. If you're on an older system, consider switching to a repo-linked loan by requesting a conversion with your bank. Most lenders allow this for a nominal fee.

Another option is to refinance your loan with another bank offering lower rates. This can be especially useful if your credit score has improved since you took the loan. Reducing your loan tenure can also cut total interest outgo, though it may increase monthly payments.

Prepaying a part of your loan when you have surplus funds is also a smart way to reduce the EMI burden or the tenure—both bring interest savings.

Final word: Watch your loan terms closely

Just because the RBI cuts rates doesn’t mean your bank will follow suit quickly. Being proactive about understanding your loan terms and exploring refinancing or conversion options can help you stay ahead. With rising household expenses, any drop in EMI can bring welcome relief—provided you make the move to claim it.