Borrowers struggling with high monthly EMIs could soon breathe easier. The Reserve Bank of India (RBI) has rolled out a major rule change effective October 2025, allowing banks to pass on loan rate cuts faster than before.
This means your EMI could drop sooner whenever the bank reduces its lending rate without waiting years for the benefit to reach you.
What Changed
Until now, banks had to maintain a three year lock in period before adjusting the “spread” the part of your loan interest rate that sits above the benchmark rate.
From October, the RBI has removed that lock in, giving lenders flexibility to revise this spread sooner when benchmark rates fall.
Result: Borrowers will now see quicker transmission of interest rate cuts into their EMIs.
Who Benefits Most
- Home Loan Borrowers: especially those on floating rate loans.
- Personal & MSME Loans: with variable interest rates linked to repo or MCLR.
- Existing Borrowers who’ve been waiting for banks to pass on rate cuts.
If you took a loan tied to a floating rate, you’re among the biggest beneficiaries.
How It Works
Every floating rate loan = Benchmark Rate + Spread.
Earlier, even if the benchmark fell, the spread stayed locked for years.
Now, banks can adjust that spread anytime, ensuring a faster fall in effective interest rates and lower EMIs.
What Borrowers Should Do
- Check your loan type: Only floating rate loans benefit directly.
- Ask your bank: Whether your spread will be revised after October.
- Negotiate or switch: If your bank delays passing on rate cuts, consider refinancing or switching lenders.
- Know your reset date: Most floating loans are reset once every 3 to 6 months.
- Option to switch to fixed rate: You can lock your EMI if you prefer stability.
Long Term Impact
- Faster relief when RBI cuts policy rates.
- Stronger competition among banks to offer lower rates.
- Better monetary policy transmission RBI’s decisions will affect consumers sooner.
- Higher financial flexibility for households and small businesses.
Financial experts say this will make India’s credit system more borrower-friendly, especially for middle-class families juggling home and personal loans.
What to Watch Out For
- The rule does not apply to fixed rate loans.
- Banks still have discretion in deciding how much to reduce and when.
- Some contracts may have internal conditions or time limits on rate revisions.
Bottom Line
This RBI reform could be a game changer for India’s 80+ million retail borrowers.
From October 2025, your bank will have no excuse to delay passing on rate cuts bringing faster, fairer EMI relief straight to your pocket.
