All banks need to swiftly pass on 50 bps rate cut to customers rbi bulletin

All banks need to swiftly pass on 50 bps rate cut to customers rbi bulletin

The Reserve Bank of India has urged all banks to reduce their lending rates to support faster and more efficient transmission of recent policy rate cuts to borrowers, according to an article in its June 2025 Bulletin.

The RBI had earlier this month cut the key repo rate by a sharp 50 basis points. The article, titled State of the Economy, stated that financial conditions remained favourable for an effective transmission of rate cuts into the credit market.

‘Financial conditions remained conducive to facilitate an efficient transmission of rate cuts to the credit market,’ the authors wrote.

Most banks have already passed on the earlier cuts from February and April to borrowers. Large lenders such as State Bank of India, Bank of Baroda and HDFC Bank had transmitted the 50 bps reduction in repo rate to their customers within days of the June 6 announcement, PTI said.

The RBI had also reduced the cash reserve ratio (CRR) by 100 basis points to 3% of net demand and time liabilities (NDTL), with the cut to be implemented in a staggered manner through the latter half of the year.

According to the article, the CRR reduction is expected to inject around ₹2.5 lakh crore of primary liquidity into the banking system by December 2025.

‘Besides providing durable liquidity, it will reduce the cost of funds for banks, thereby facilitating monetary policy transmission to the credit market,’ the authors wrote.

The article clarified that the views expressed were those of the authors and not the official stance of the RBI.

The article said that the 50-bps policy repo rate cuts between February and April had already reflected in banks' lending benchmarks, including external benchmark-based lending rates (EBLRs) and marginal cost of funds-based lending rates (MCLR).

As a result, the weighted average lending rate (WALR) on fresh rupee loans fell by 6 basis points, while the WALR on outstanding rupee loans dropped by 17 basis points between February and April.

On the deposit side, the weighted average domestic term deposit rates (WADTDRs) on fresh deposits fell by 27 basis points, while those on outstanding deposits saw a marginal decline of 1 basis point during the same period.

The article further said that public sector banks (PSBs) had cut their WALR on fresh rupee loans by a slightly higher margin compared to private banks (PVBs). However, in the case of outstanding loans, the fall in WALR was greater for PVBs.

Similarly, PSBs reduced their fresh term deposit rates more than PVBs did during this easing cycle, the article said.