The Reserve Bank of India cut the repo rate by 125 basis points to 5.25% through 2025 before shifting to a neutral stance and keeping rates unchanged at its last two policy meetings. According to reports from Mint, this should have meant cheaper loans for home-loan borrowers, but a closer look reveals a different picture. The RBI requires banks to link all floating-rate retail loans to an external benchmark, typically the repo rate, since October 2019 under the EBLR framework. However, the interest rate a borrower ultimately pays is made up of two parts: the benchmark and a spread, with the spread determined by the bank and reflecting factors such as the borrower's credit profile, loan-to-value ratio, operating costs and commercial considerations.
An analysis of historical home loan rates from the country's five largest banks shows that between February 2025 and the end of May 2026, lenders reduced home loan rates by 65 to 125 basis points. However, as reported by Mint, the advertised rates apply only to borrowers with exceptional credit profiles, typically those with credit scores above 780-800. According to a TransUnion CIBIL report, the average credit score among monitoring consumers stood at 728 as of December 2025. For borrowers with scores below 780, the picture looks very different, with some banks increasing rates despite the RBI's easing cycle. State Bank of India increased rates for the 750-824 score bucket from 7.55% to 7.70% from April 2026, while ICICI Bank raised rates for borrowers with scores between 780 and 799 from 7.30% to 7.60%. Union Bank of India increased rates for the 750-799 category from 7.3% to 7.35% over the same period.
According to Peaceful-Loans data cited by Mint, when three or four large banks control roughly 60-65% of the home loan market, they gain considerable pricing power. Mangesh Zope from Peaceful-Loans explained that some lenders have used this advantage over the past 12-14 months by gradually increasing spreads for new borrowers. SBI's home loan rate for a borrower with the same CIBIL score is currently about 0.3 percentage points higher than it was 12-14 months ago. Even small differences in spreads can have meaningful impact over a 15-20 year loan tenure - a borrower with a ₹80 lakh loan at 8% EMI would pay approximately ₹66,900 per month and ₹80.6 lakh in total interest, while a 10 basis point increase to 8.10% would add nearly ₹1.2 lakh in interest costs over the loan tenure. Banks increasingly adopt sharper risk-based pricing models, with lenders differentiating more aggressively based on credit quality, repayment behaviour, income stability and overall risk assessment.
As reported by Mint, borrowers with similar profiles may receive materially different loan offers across banks, making periodic rate reviews essential. Adhil Shetty from BankBazaar advises that borrowers should focus on the spread applied by the lender rather than just RBI rate decisions, as the spread ultimately determines the final borrowing cost. Borrowers with credit scores above 800 may receive the best rates, while those in the 750-799 range are treated as a statistical grey zone by many lenders. Amit Prakash from Urban Money noted that banks increasingly adopt sharper risk-based pricing models, with lenders differentiating more aggressively based on credit quality, repayment behaviour, income stability and overall risk assessment. The spread has become almost as important as the repo rate in determining borrowing costs for home loan borrowers. Banks retain discretion in terms of board-approved policies, loan contracts, and the RBI framework for reviewing spread components, though they generally don't increase spreads for existing borrowers due to competitive considerations and customer retention.
