Banks May Soon Cut Interest Rates: RBI’s Latest Move Explained

BY  CREDORA.
India News | Apr 09, 2025 | 4 min read

With the Reserve Bank of India (RBI) reducing the repo rate by 25 basis points, bringing it down to 6%, the financial ecosystem may witness a series of rate cuts by banks in the upcoming quarters. According to a detailed report by SBI Research, this move sets the stage for a more accessible lending environment across the country.

Public and Private Banks May Follow Suit

Following the cumulative 50 basis points cut in the repo rate since February 2025, several banks are now expected to transmit these benefits to consumers:

• Public sector banks have already trimmed deposit rates by 6 basis points.

• Foreign banks have reduced rates by 15 basis points.

• Interestingly, private banks slightly increased rates by 2 basis points, potentially to attract more deposits amidst competition.

The Weighted Average Lending Rate (WALR) for fresh loans closely aligns with the repo rate, indicating strong transmission efficiency in India’s monetary system.

RBI’s Push Toward Financial Reforms

Besides the rate cuts, the RBI has proposed a new securitisation framework for stressed assets, diverging from the traditional ARC route under the SARFAESI Act. This is aimed at:

• Enhancing flexibility in handling non-performing assets (NPAs).

• Supporting banks in faster recovery and asset resolution.

Additionally, the RBI is reviewing co-lending models, which currently apply to partnerships between banks and NBFCs for priority sector lending. The goal is to expand co-lending to all regulated financial entities, broadening the scope and impact.

Gold Loan Market Under Scrutiny

With a spike in gold prices and increased borrowing against gold, the RBI is likely to issue fresh prudential and conduct norms to regulate:

• Loan-to-Value (LTV) ratios,

• Interest rate models,

• Distribution channels used by lenders.

This move will bring parity across regulated and unregulated gold loan providers and protect borrowers from overleveraging.

Boost for Infrastructure and UPI

Another major announcement includes the revision of guidelines for Partial Credit Enhancement (PCE) to:

• Encourage bond market development.

• Support infrastructure financing through relaxed capital requirements.

In the digital payment space, NPCI is now allowed to increase UPI limits for person-to-merchant (P2M) payments. However, person-to-person (P2P) transfers will remain capped at ₹1 lakh.

What It Means for You

If you're planning to:

• Take a home, auto, or personal loan – expect lower EMIs soon.

• Invest in bonds or infrastructure debt – new opportunities could emerge.

• Use UPI for high-value merchant transactions – the process just got easier.

This proactive move by the RBI reinforces its commitment to ensuring financial stability, while creating a pathway for growth amidst evolving global uncertainties.