The Reserve Bank of India’s latest 25-basis-point rate (bps) repo rate cut is expected to give further boost to home buying, said bankers. Since February, the RBI has cut rates by 125 bps, making new home loans that are linked to external benchmarks significantly cheaper. Besides rising queries, buyers are also exploring the option of balance transfer.
“The repo-led relief improves affordability for buyers and is likely to bring fence-sitters back, particularly in the mass market segment,” said Manu Singh, president & business head, housing finance, Kotak Mahindra Bank.
Transmission in Action
Tamilnad Mercantile Bank (TMB) said it has already begun a calibrated pass-through. “Borrowers under external benchmark–linked home loans will start experiencing the benefit shortly, and full transmission is expected within this quarter, aligned with our ALM cycle,” said Salee S Nair, MD & CEO, adding that the bank is proactively helping customers choose between an EMI reduction and a shorter tenure.
Nair also said that there has been a measurable pick-up in interest after the policy decision. Inquiries, sanctions and refinance requests have risen, mirroring past easing cycles. Balance transfers, in particular, have gained traction as borrowers explore lower-rate options.
Industry players see the rate cut has set the stage for housing demand to stay strong through the remaining part of the financial year.
According to CSB Bank, while the reduction in lending rates is immediate for floating-rate home loans, new loan pricing may adjust with a small lag as liability costs ease over time. The bank expects the industry to absorb the margin impact comfortably, supported by the RBI’s liquidity steps.
Temporary Margin Squeeze vs. Sustained Demand Outlook
Of course, the sharp rate cut is expected to hit margins. But most bankers believe that this is a temporary squeeze. Lenders expect a short-term adjustment in margins, given that lending rates reset faster than deposits.
“Our balance sheet remains strong… and as deposits gradually reprice, we expect cost of funds to stabilise, making the margin impact temporary,” Nair added.
According to the sectoral deployment data for October, bank credit to housing loans grew by 11.0% on year, higher than 10.1% on year growth in September. However, the growth was still lower than 12.1% reported in the corresponding period a year ago.
Banks now expect affordability, stable income growth and steady real estate activity in urban and semi-urban markets to shape the next leg of demand recovery. With easing rates and improved liquidity, lenders anticipate a sustained pickup rather than a sudden spike, setting up a stronger close to the financial year.