3 types of borrowers will not immediately benefit from RBI's repo rate cut. Here's what they can do

The recent repo rate cut by the Reserve Bank of India (RBI) is set to immediately benefit borrowers who have floating rate loans linked to an external benchmark (EBLR), which is usually the repo rate.

However, three types of borrowers will not immediately benefit from the repo rate cut. This article explains who these borrowers are and what they may do to change their situation.

Who are these borrowers?

The first set of borrowers, who will not immediately benefit from the repo rate cut, are those who have their loans linked to the Marginal Cost of Funds-based Lending Rates (MCLR), which is the minimum interest rate below which a bank cannot lend to its customers.

While banks adjust the MCLR based on changes in the RBI's repo rate, the transmission of repo rate cuts in MCLR loans usually takes longer than repo-based EBLR loans.

According to SBI Research, around 60.2% of all loans are now linked to EBLR, and 35.9% of loans are linked to MCLR. It further says that the MCLR-linked rate has a longer reset period and "may get adjusted with some lag."

These borrowers are also not going to benefit from the repo rate cut, as their interest rates are fixed at the start of the loan. In such loans, interest rates are usually higher but fixed throughout the tenure of the loan.

The third type of borrowers is those who have low credit scores. The interest rate offered by banks to borrowers with a low credit score is higher than that offered to other borrowers. Due to a 100 bps reduction in the repo rate since February 2025, some banks are now going to offer interest rates starting as low as 7.35%-7.5%. However, borrowers with low credit scores will not benefit from such low interest rates.