RBI Urges Banks to Lower Lending Rates for Faster Credit Flow After Policy Rate Cuts

In a recent bulletin published in June 2025, the Reserve Bank of India (RBI) has called on banks to further reduce lending rates to ensure quicker and more effective transmission of recent policy rate cuts to borrowers. This move comes after the RBI implemented a sharp 50 basis points cut in the repo rate earlier this month, aiming to boost liquidity and lending in the economy.

Financial Environment Favourable for Lending Rate Transmission

According to the “State of the Economy” article in the bulletin, the current financial landscape is well-positioned to support this rate transmission. The article notes, “Financial conditions remained conducive to facilitate an efficient transmission of rate cuts to the credit market.”

Many banks have already acted on earlier cuts. Prominent lenders such as State Bank of India (SBI), Bank of Baroda, and HDFC Bank quickly passed on the 50 basis point rate cut announced on June 6 to their borrowers.

CRR Reduction Aimed at Injecting Liquidity

In addition to the repo rate cut, the RBI also reduced the Cash Reserve Ratio (CRR) by 100 basis points, bringing it down to 3% of net demand and time liabilities (NDTL). This CRR cut is being rolled out gradually over the second half of the year and is expected to inject ₹2.5 lakh crore in primary liquidity into the banking system by December 2025.

This additional liquidity will reduce the cost of funds for banks, making it easier for them to offer loans at lower rates. The authors of the bulletin emphasized that this would strengthen the transmission of monetary policy into the real economy.

Rate Cuts Already Reflected in Lending Benchmarks

The bulletin also noted that the policy rate reductions made between February and April 2025 have already started influencing banks’ lending benchmarks. This includes adjustments in external benchmark-based lending rates (EBLRs) and marginal cost of funds-based lending rates (MCLR), both of which determine the borrowing cost for various loans.

Clarification on Views

While the article provides detailed analysis, the RBI clarified that the views expressed are those of the authors and do not represent the official stance of the central bank.

The RBI’s push for lower lending rates is part of a broader strategy to ensure that recent policy rate reductions translate into cheaper credit for businesses and individuals. With both repo rate and CRR cuts in place, the central bank is aiming for a more robust and responsive credit market that can drive economic growth in the coming months.