Repo Rate Down, But EMIs Unchanged—Banks Explain the Delay

The Reserve Bank of India (RBI) often reduces the repo rate during its Monetary Policy Committee (MPC) meetings, a move that is expected to bring relief to borrowers. In theory, a lower repo rate should reduce lending rates, which in turn should lower Equated Monthly Installments (EMIs) on loans such as home loans, car loans, and personal loans. However, in practice, many borrowers do not see an immediate reduction in their EMIs after such cuts. One of the main reasons for this delay is the structure of floating-rate loans. In most cases, banks do not revise interest rates on a daily basis. Instead, they reset them at fixed intervals, which can range from three months to six months, and in some cases even up to a year. This means that even if the RBI reduces the repo rate today, borrowers may continue paying the same EMI until their loan’s next reset cycle. Another important factor is how floating interest rates are structured. They are usually made up of two parts: a benchmark rate and a spread. The benchmark rate is linked to market conditions and changes with movements in the repo rate. However, the spread is decided by the bank and generally remains fixed throughout the loan tenure. As a result, even if the benchmark rate falls, the overall interest rate on the loan may not decrease significantly or immediately. The issue becomes more complicated for borrowers with older loans. Many of these loans are still linked to earlier interest rate systems, under which transmission of policy rate cuts was slower and less transparent. Although newer loan frameworks are designed to pass on benefits more efficiently, older borrowers often do not receive the same level of relief unless they switch to newer schemes. In some situations, banks also do not automatically pass on the reduced interest rates. Borrowers may need to request a loan restructuring, submit an application, or pay a conversion fee to benefit from lower rates. Unfortunately, many customers are unaware of these requirements, resulting in missed opportunities for savings. In conclusion, while RBI repo rate cuts are intended to make borrowing cheaper, the benefits do not always reach customers immediately due to loan structures, reset cycles, fixed spreads, legacy loan systems, and procedural requirements. As a result, EMI reductions often take time or require proactive steps from borrowers to actually reflect the policy changes.