These Borrowers Are Not Likely to Benefit Immediately from RBI Rate Cut; Find Out If You Fall Under This

On June 6, the Reserve Bank of India (RBI) reduced the repo rate by 50 basis points (bps), offering immediate relief to borrowers whose loans are linked to external benchmarks like the repo rate. While many banks have already begun passing on the benefits of this rate cut, certain types of borrowers may not immediately experience a reduction in their loan repayments. 

This article will explore groups of borrowers who may not immediately experience a reduction in EMIs (loan repayment) and how they can make adjustments to benefit from future rate cuts.

1. Borrowers with MCLR Loans

A significant portion of borrowers in India still have loans tied to the Marginal Cost of Funds-based Lending Rate (MCLR), which is the minimum interest rate below which a bank cannot lend to customers.

Although the repo rate is a critical factor influencing the MCLR, the transmission of rate cuts is often slower in MCLR-linked loans compared to those linked to external benchmarks such as the repo rate. As per the SBI Research report, around 35.9% of all loans in India are linked to the MCLR.

Since the MCLR reset period is longer, these borrowers may not see an immediate reduction in their loan rates, even with the RBI's recent 50 bps repo rate cut.

2. Borrowers with Fixed-Rate Loans

Another group of borrowers who will not immediately benefit from the recent repo rate cut are those with fixed-rate loans. In these loans, the interest rate is predetermined at the start and remains fixed throughout the tenure of the loan.

While the fixed rate may offer stability against interest rate fluctuations, it also means that repo rate cuts will not lead to any immediate reductions in your loan repayments.

3. Borrowers with Low Credit Scores

Borrowers with low credit scores are the third group who will not benefit from the repo rate cuts to the same extent. While the repo rate has been reduced by 100 bps since February 2025, which is expected to bring interest rates down to as low as 7.35%–7.5%, borrowers with poor credit scores are unlikely to qualify for these lower rates.

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Conclusion

While the RBI repo rate cut has provided immediate relief to many borrowers, not all borrowers will benefit right away. Those with MCLR-linked loans, fixed-rate loans, or low credit scores may need to take additional steps, such as switching loan types or improving their credit scores, in order to fully capitalise on future rate reductions. It is important for borrowers in these categories to be proactive and assess their options carefully.

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