Home loan borrowers may have to wait before their EMIs come down as banks are likely to tread cautiously on passing on the full benefit of the 25 basis point repo rate cut announced by the RBI on Wednesday, experts have observed.

While loans benchmarked to the repo rate (EBLR loans) may see an immediate decrease, loans linked to MCLR, which is still the bulk of the home loan taken by borrowers, will see a reduction in interest rates with a lag effect.

A borrower with a ₹50 lakh loan for a 20-year tenure will see her EMI go down by ₹9,540 a year or ₹795 a month if the 25-basis point cut is immediately passed on by the banks.

The RBI’s monetary policy document on Wednesday showed that the weighted average term deposit rate on retail deposits fell by only 3 basis points and on lending rates on outstanding rupee loans fell by 7 basis points, after the 25 basis points easing in the policy rate in February.

Anuj Puri, chairman of real estate consultancy Anarock, said home loan borrowers may not see much meaningful or immediate interest rate relief.

“Banks have not transmitted earlier MPC rate cuts to borrowers because of higher funding costs, pressure on net interest margins, higher NPAs and a cautious lending climate,” Puri observed.

Private sector banks such as HDFC, Axis and ICICI have reduced interest rates by 5-10 bps on fresh home loans between January 2025 and April 4, 2025 and their rates still hover above 8.7 per cent. In contrast, public sector banks are offering competitive rates — the home loan rates at the country’s largest bank SBI start at 8.25 per cent.

If banks do pass on the benefits of the last two rate cuts, it will be a boost to homebuyers, particularly for those eyeing affordable housing, Puri noted, adding that many first-time homebuyers who had been hesitating to take the plunge may make their move if home loan rates are reduced.

RBI governor Sanjay Malhotra acknowledged that monetary policy transmission takes time. “Transmission takes a little while. It will not happen immediately, as we have seen in the past. We are watchful and we will provide sufficient liquidity to the system so that the transmission of the policy rates into the interest rate happens quickly,” he said on Wednesday.

A senior public sector bank official told this newspaper that it would take at least a couple of weeks for banks to work out the transmission both on the lending side as well as on the deposit side.

Banks and housing finance companies, however, are optimistic that the RBI’s move to cut repo rates will spur credit demand.

“This cut is likely to spur demand for home, auto, and personal loans, especially in tier 2 and tier 3 markets, where interest sensitivity is higher. Retail loans grew over 18 per cent year on year according to recent trends and a lower rate environment could further accelerate consumption and support economic momentum,” said Binod Kumar, MD & CEO, Indian Bank.

According to Girish Kousgi, MD and CEO, PNB Housing Finance, the consecutive rate cut signals a favourable lending environment and bodes well for homebuyers, particularly in the affordable and mid-income segments.

Anarock’s Puri had a word of advice for existing borrowers looking for easing monthly outgo. “Any potential EMI reduction should be used to prepay home loans or invest for higher returns instead of on mere consumption,” he said.