RBI asks all banks to ensure 50 bps rate cuts are passed on to customers swiftly

Weeks after slashing its repo rate by 50 basis points, the Reserve Bank of India in a report suggested that all banks should swiftly bring down their interest rates to ensure speedy transformation of the policy.

According to an article published in the central bank's June bulletin, the RBI stressed that the financial conditions remained favourable for facilitating an efficient transmission of rate cuts by banks.

It may be noted that since the RBI cut rates in February and April, most banks have passed down the same to their customers.

SBI, Bank of Baroda, and HDFC Bank are among the lenders that have already passed on the benchmark lending rate-linked interest rate to borrowers by the same margin within days of the RBI cutting repo rate by a jumbo 50 bps on June 6.

“Financial conditions remained conducive to facilitate an efficient transmission of rate cuts to the credit market,” as per an article on 'State of the Economy' in the Reserve Bank's June 2025 Bulletin.

RBI also cut CRR

The RBI had in June also announced a reduction in the cash reserve ratio (CRR) by 100 bps to 3 per cent of net demand and time liabilities (NDTL) in a staggered manner during the latter half of the year.

The reduction in CRR would release primary liquidity of about ₹2.5 lakh crore 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 article added.

The central bank, however, said that the views expressed in the Bulletin article are those of the authors and do not represent the views of the Reserve Bank of India.

The article noted that the 50-bps cut in the policy repo rate during February-April 2025 reflected in banks' repo-linked external benchmark-based lending rates (EBLRs) and marginal cost of funds-based lending rate (MCLR).

Consequently, the weighted average lending rate (WALR) on fresh and outstanding rupee loans of banks declined by 6 bps and 17 bps, respectively, during the period February-April 2025.

On the deposit side, the weighted average domestic term deposit rates (WADTDRs) on fresh and outstanding deposits moderated by 27 bps and 1 bp, respectively, during the same period.

According to the article, during the current easing cycle (February-April 2025), the decline in the WALR on fresh rupee loans was marginally higher for public sector banks (PSBs) as compared to private sector banks (PVBs).

For outstanding loans, the transmission was higher for PVBs.

In case of deposits, PSBs reduced their fresh term deposit rates by a higher magnitude as compared to PVBs.

(With PTI inputs)