The Reserve Bank of India (RBI) has mandated that all retail floating-rate loans, including home loans, be linked to an external benchmark, typically the RBI’s repo rate, since October 1, 2019. This means that when the RBI reduces the repo rate, banks are required to pass on the benefit to borrowers. However, it has been observed that public banks have been prompt in complying with this guideline, while several private banks have been slow to adjust.
Despite a cumulative 50-basis-point cut in the repo rate in February and April 2025, leading private banks such as ICICI Bank, Axis Bank, and HDFC Bank have not fully transmitted the reduction to customers. For instance, ICICI Bank’s home loan rate remains unchanged at 8.75%, while HDFC Bank has reduced its rate by only 25 basis points to 8.50%. On the other hand, government banks such as Canara Bank, Bank of Maharashtra, and Union Bank of India are offering competitive interest rates, ranging from 7.80% to 7.90%, for a home loan of ₹1 crore with a tenure of 20 years.
Experts believe that private lenders may revise their rates soon, as large lenders usually align their rates over time. A lower interest rate can significantly reduce the monthly EMI burden, resulting in higher savings and preservation of emergency funds. For example, a home loan of ₹1 crore with a tenure of 20 years at an interest rate of 7.80% would translate to a monthly EMI of ₹82,404, compared to ₹93,144 at an interest rate of 9.35%.
If you’re planning to buy a home, now is a favorable time to act, with multiple public sector banks (PSBs) offering sub-8% interest rates. However, it’s essential to assess factors such as your credit score, income, and loan tenure before making a decision, as these can influence your final interest rate. It’s also important to note that rates are subject to change and may vary depending on the lender and borrower profile. Therefore, it’s crucial to check with lenders for the latest terms and consult a professional before taking a loan.