New Delhi – Lending rates are expected to decline by approximately 30 basis points (bps) following the recent reduction in policy rates, according to a report by SBI Research.
The drop in rates will be most immediately noticeable in loans linked to the External Benchmark Lending Rate (EBLR), which make up nearly 60% of total loans issued by Scheduled Commercial Banks (SCBs), the report said.
Because of the large share of EBLR-linked loans, the impact of the policy rate cut will be passed on quickly to borrowers, making loans more affordable and potentially boosting demand.
“This move aims to lower borrowing costs and stimulate economic activity,” the SBI report noted.
However, the decline in lending rates may squeeze banks’ profit margins. To ease this pressure, the Reserve Bank of India (RBI) also announced a reduction in the Cash Reserve Ratio (CRR), which will lower the cost of funds for banks.
While the CRR cut may not directly impact deposit or lending rates, SBI estimates it could help improve banks’ Net Interest Margins (NIMs) slightly — by 3 to 5 bps.
The report also highlighted that the CRR cut will enhance liquidity in the banking system. It is likely to reduce the base money (M0) and increase the money multiplier by 20–30 bps, which may facilitate better credit flow.
Meanwhile, banks have already begun reducing Fixed Deposit (FD) rates. Since February 2025, FD rates have fallen by 30 to 70 bps, and SBI expects this trend to continue in the coming months.
Looking ahead, while lower rates will benefit borrowers, SBI cautioned that banks may face continued pressure on profit margins.
“The exact impact will vary across institutions, but overall, profit margins are likely to narrow,” the report said.
Future changes in monetary policy, it added, will depend on economic performance. While further rate cuts seem unlikely for now, the recent large surplus transfer from the RBI to the government has strengthened the fiscal position.
For the next quarter, SBI does not anticipate any further changes to the policy rate.
With inputs from IANS