The Reserve Bank of India (RBI) often announces repo rate cuts to make borrowing cheaper.
When this happens, many home loan borrowers expect an immediate reduction in their EMIs.
However, a lot of people get frustrated when their EMI remains the same even after such announcements.
If this has happened to you, don’t worry you are not alone. There are very specific reasons behind this delay, and understanding them can save you from paying extra money unnecessarily.
Why Isn’t My EMI Dropping Immediately After RBI Cuts?
When RBI reduces the repo rate, it does not directly lower your EMI the next day.
Your home loan is linked to either MCLR (Marginal Cost of Lending Rate) or an external benchmark like the repo rate.
Banks follow reset dates, internal policies, and calculation cycles. This means the benefit might reach you after a delay of 3–6 months.
Many borrowers assume that the cut should reflect instantly, but the reality is that there are structural delays in the system.
Let’s break down the key reasons why your EMI might not be dropping as quickly as you’d hoped.
1. Your Loan's Reset Date is Everything
Imagine your loan agreement has a scheduled “re-evaluation day.” That’s essentially what a loan reset date is.
This is the specific date when your bank will recalculate your interest rate based on the current market conditions and benchmark rates.
How it Works: For home loans linked to the repo rate, this reset typically happens every three months. For older loans linked to the MCLR (Marginal Cost of Lending Rate), the reset can be anywhere from six to twelve months.
A Real-World Example: Let’s say the RBI announces a rate cut in September, but your home loan’s reset date is in December. Even though the new, lower rate is in effect, your bank will only apply it to your loan on that specific December date. Until then, you’ll continue paying your old EMI. This is a crucial detail that many people miss, leading to unnecessary worry.
2. The Great Divide: MCLR vs. External Benchmark
This is perhaps the most significant factor affecting how quickly you benefit from a rate cut.
MCLR-Linked Loans: If you took out your home loan before October 2019, it’s very likely linked to the MCLR. This is an internal lending rate for banks. When the RBI cuts the repo rate, it takes time for this change to influence the bank’s cost of funds, which in turn influences the MCLR. The transmission of benefits is slow and often incomplete.
External Benchmark-Linked Loans: Since October 2019, the RBI mandated that all new floating-rate loans must be linked to an external benchmark, with the most popular being the repo rate. These loans are designed for faster transmission. A rate cut by the RBI directly and quickly affects the benchmark, and banks are obligated to pass on the benefit more swiftly usually within one to three months.
Why this matters to you: If your loan is still MCLR-based, you are at a disadvantage. You could be waiting up to a year to see a benefit that someone with a repo-linked loan would get in a fraction of that time.
3. The Bank’s Hidden Spread or Margin
You might think your interest rate is simply the repo rate plus a small percentage. But it’s not that simple. Banks add their own “spread” or “margin” on top of the benchmark rate. This is their profit margin and covers their operational costs.
What it means for you: Let’s say the repo rate is 6.5%, and your bank’s spread is 2.5%. Your interest rate is 9%. If the RBI cuts the repo rate to 6.25%, your bank might still keep its spread at 2.5%, making your new rate 8.75%. The problem is, this spread is often fixed for the loan’s lifetime and doesn’t reduce automatically. Sometimes, banks may even increase the spread to protect their profits, a practice that the RBI has tried to curb.
4. Delays in Bank Policy Implementation
Even when all the technicalities are in place, the speed at which banks pass on benefits can vary.
Some banks are quicker than others. Public-sector banks, for example, often pass on rate changes more transparently and faster, while some private banks may take their time to adjust their internal policies and lending rates.
This is simply a matter of corporate policy and business strategy.
What Can You Do If Your EMI Hasn't Dropped?
Waiting passively is not your only option. Here’s a proactive game plan:
- Read Your Loan Agreement: Find your loan sanction letter or agreement. This document will tell you whether your loan is linked to MCLR or an external benchmark and, more importantly, what your specific reset date is.
- Talk to Your Bank: Call your bank’s customer care or visit a branch and ask them directly about the delay. Inquire about your loan type and the reset schedule. This can clear up any confusion and also put them on notice that you are actively tracking your loan.
- Explore Switching to a Repo-Linked Loan: If your loan is MCLR-based, you can ask your bank about switching to a repo-linked rate. Most banks allow this for a small fee. This move could save you a significant amount over the long term.
- Consider Refinancing or Balance Transfer: This is a powerful tool. If your current bank is being slow or uncooperative, you can transfer your outstanding loan to a different bank or NBFC (Non-Banking Financial Company) that offers a lower interest rate. This is known as a balance transfer. While it involves some paperwork and a small fee, the savings can be substantial, especially on a large loan.
Why This Matters in 2025
In today’s world, home loans run for 15–25 years. Even a small 0.25% reduction in rates can save you 2–4 lakh rupees over the life of the loan. Many borrowers lose this advantage because they don’t track how their EMI is calculated. In 2025, when property prices and borrowing needs are higher than ever, staying proactive about your loan can make a huge financial difference.
What Can You Do If Your EMI Hasn’t Dropped?
- Check your reset date in the loan agreement.
- Ask your bank if your loan is MCLR-linked or repo-linked.
- Compare interest rates with other banks or NBFCs.
- Consider refinancing if your current lender is not reducing rates.
- Stay updated with RBI announcements so you know what to expect.
Why Choose Adiguru Financial Services?
If your EMI hasn’t dropped even after the RBI announced a rate cut, the reason isn’t bank negligence but technicalities like reset dates, loan type, and bank margins.
However, you don’t need to keep waiting passively. By understanding your loan terms, comparing with other banks, and renegotiating or refinancing, you can ensure that you enjoy every benefit of lower rates.
At Adiguru Financial Services, we help borrowers like you track these details, shift loans when required, and save lakhs over the loan period. Contact us today to understand how you can bring your EMI down effectively.
📞 Call us now: +91 886 652 9124 | +91 989 840 9871
📧 Email: info@adigurufinancialservices@gmail.com
🌐 Website: www.adigurufinancialservices.com
Based in Vadodara, we serve clients across Gujarat. Let’s make your commercial property dream a reality, together.
FAQs
Why didn’t my EMI reduce immediately after RBI cut repo rates?
Banks follow a reset cycle, so your new interest rate and reduced EMI will only apply on your loan’s next reset date.
How do I know if my loan is MCLR-based or repo-linked?
Check your sanction letter; loans issued after October 2019 are generally repo-linked, while older ones are likely MCLR-based.
Is refinancing a good option if my bank delays reducing my EMI?
Yes, refinancing can be a smart move to get a lower interest rate and more transparent policies from a new lender.
Yes, refinancing can be a smart move to get a lower interest rate and more transparent policies from a new lender.
It’s the additional percentage that banks add to the benchmark rate to cover their costs and profit margin.
It's the additional percentage that banks add to the benchmark rate to cover their costs and profit margin.
Repo-linked loans typically reset every 3 months; MCLR loans reset every 6-12 months, depending on your agreement.
Repo-linked loans typically reset every 3 months; MCLR loans reset every 6-12 months, depending on your agreement.
Yes, most banks allow you to switch for a small fee, which can result in faster rate transmission.
Do NBFCs also follow RBI repo rate cuts?
Yes, NBFCs also follow the RBI’s policy rates, but their transmission speed may vary due to different internal processes.
What if my bank refuses to reduce my EMI after an RBI cut?
You can file a complaint with the bank’s grievance cell or the RBI ombudsman, or simply consider refinancing with another lender.
Why do some banks pass on benefits faster than others?
The speed depends on the bank’s internal policies, cost of funds, and business strategy; public-sector banks often act faster.
How much can I really save if my EMI reduces after a 0.25% cut?
On a ₹50 lakh loan for 20 years, a 0.25% reduction can save you around ₹2-3 lakhs in total interest over the loan’s lifetime.
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