The transmission of the cumulative 100 basis points repo rate cut to floating rate loans in the current easing cycle could see households save around ₹50,000 to ₹60,000 in loan repayments, according to SBI’s economic research department (ERD).
This takes into account the fact that about 80 per cent of Banks’ retail and MSME loans portfolio are linked to external benchmark lending rates (EBLR) such as the repo-linked lending rate (RLLR).
The ERD economists opined that transmission of the repo rates cuts to lending rates is a relief to households.
“On an average, the easing cycle continues for about 2-years, thereby the interest cost of households will continue to decline,” they said.
The RBI’s rate setting monetary policy committee has cumulatively cut the repo rate by 100 bps so far in 2025– 25 bps each in February and April and 50 bps on June 6.
The economists note that India’s household debt is relatively low (42 per cent) compared to other EMEs (49.1 per cent). However, it has increased over the past three years.
Interestingly, the increase is driven by a growing number of borrowers rather than an increase in average indebtedness, they added.
Disaggregated analysis of the nature of individuals’ borrowings by the ERD shows that loans are primarily used for consumption like personal loans, credit cards, consumer durable loans and other personal loans (45 per cent share), asset creation like home loans and vehicle loans (25 per cent) and for productive purposes like agriculture loans, business loans and education loans (30 per cent).
So, the rise in household debt is not worrisome as two-thirds of the portfolio is of prime and above credit quality, said Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI.