Lending rates likely to fall by 30 bps after policy rate cut: SBI

New Delhi: Lending rates are expected to drop by about 30 basis points (bps) after the recent cut in policy rates, according to a new SBI report.

This change will be felt most immediately in loans linked to the External Benchmark Lending Rate (EBLR), which account for around 60 per cent of all loans given by Scheduled Commercial Banks (ASCBs), as per the data compiled by State Bank of India (SBI) Research said.

The report said that because of this high share of EBLR-linked loans, the impact of the policy rate cut will be passed on quickly, making loans cheaper for many borrowers.

“This move is aimed at reducing borrowing costs and boosting demand in the economy,” the report added.

However, the fall in lending rates could hurt banks’ profit margins. To help ease this pressure, the Reserve Bank of India (RBI) has also lowered the Cash Reserve Ratio (CRR), which will reduce the cost of funds for banks.

While the CRR cut may not directly change deposit or lending rates, SBI said it could help banks slightly improve their Net Interest Margins (NIM) by 3 to 5 bps.

Additionally, the report noted that the CRR cut could improve liquidity in the banking system. It is expected to reduce the amount of base money (M0) and raise the money multiplier by 20 to 30 bps, which may support better credit flow in the economy.

Meanwhile, banks have already begun cutting fixed deposit (FD) rates. Since February 2025, FD rates have come down by 30 to 70 bps, and SBI expects more reductions in the coming months as the trend continues.

Looking ahead, SBI warned that although lower rates benefit borrowers, banks might continue to face pressure on their profit margins.

“The exact impact will vary from bank to bank, but overall margins are likely to shrink,” as per the report.

Finally, the report said that any future change in monetary policy will depend on how the economy performs.

While there is limited room for more rate cuts, a large profit transfer from the RBI to the government has improved the government’s financial position. For now, SBI expects no further policy rate changes in the next quarter.

–IANS