The Reserve Bank of India's aggressive easing cycle in 2025, which reduced the repo rate by 1.25 percentage points to 5.25%, has created a stark divide between borrowers. According to Mint reports, scheduled commercial banks passed on approximately 87 basis points of the 125 basis points rate cut, while non-banking financial companies (NBFCs) transmitted only 12 basis points as of February 2026. This significant transmission gap means borrowers from NBFCs continue paying higher rates despite the central bank's accommodative stance. Latest market data from The Hindu BusinessLine shows current home loan rates across banks and housing finance companies, with floating rates ranging from 7.10% to 13.20% for loans under ₹30 lakh, and 7.50% to 20% for larger loans.
NBFCs and housing finance companies serve specific market segments that banks avoid, including properties in gram panchayat areas, self-employed borrowers, and those with irregular income. As reported by Mint, NBFC loans typically carry higher rates due to borrower risk profiles, and unlike banks, they cannot access public savings deposits, forcing them to raise funds through higher-cost debt markets. These loans are often linked to internal benchmarks like the prime lending rate (PLR) rather than external benchmarks, meaning RBI rate changes don't immediately reflect in NBFC loan rates. According to The Hindu BusinessLine data, housing finance companies currently offer floating rates ranging from 7.50% to 20% across different loan amounts, with some companies like LIC Housing Finance offering rates as low as 7.15% for smaller loans.
The transmission gap has created varying experiences for different borrower categories. According to Mint reports, Hyderabad-based borrower Ravi Korukonda saw his floating loan rate rise from 7.25% in 2019 to nearly 9% by March 2023, with his loan tenure extending from 230 months to 345 months. However, he was able to reduce his EMI tenure by 29 months and lower his rate to 7.15% from 8.15% following the 2025 rate cuts. Another borrower who took a 7.5% loan in 2022 from a housing finance company saw rates increase to 9.1% despite RBI cuts, eventually securing a 7.15% rate from a public sector bank. Current market data from The Hindu BusinessLine shows that borrowers can access competitive rates across various banks, with some institutions offering floating rates as low as 7.10% for smaller loans, while housing finance companies typically charge higher rates reflecting their risk assessment.
Financial experts recommend refinancing as a viable strategy for borrowers who continue paying higher rates. As reported by Mint, borrowers can save approximately ₹2.3 lakh in interest and reduce EMIs by around ₹1,600 on a ₹50 lakh loan through rate reductions of 50-75 basis points. However, the impact is most significant in the first three to five years of the loan cycle when a large portion of EMI goes toward interest. Banks and NBFCs typically charge ₹1,000-₹5,000 for rate revision, with balance transfers making sense when interest rate differences exceed 0.5-0.75%. Current market data from The Hindu BusinessLine shows that borrowers have access to competitive rates across multiple institutions, with banks offering floating rates from 7.10% to 13.20% and housing finance companies ranging from 7.50% to 20%, providing potential opportunities for rate optimization through refinancing.
According to Mint reports, borrowers should not assume rate cuts will automatically benefit them, as further cuts are not guaranteed. Financial experts recommend proactive strategies including negotiating with current lenders, obtaining loan offers from other banks, and considering balance transfers when rates differ by 0.5-0.75%. The analysis suggests that while falling rates can reduce tenure and interest burden for bank borrowers with external benchmark-linked loans, other borrowers continue paying higher rates due to slower transmission, particularly in the NBFC segment, requiring more vigilant borrower behavior. Current market data from The Hindu BusinessLine shows that borrowers have access to competitive rates across various institutions, with banks offering floating rates from 7.10% to 13.20% and housing finance companies ranging from 7.50% to 20%, providing multiple options for rate optimization and refinancing opportunities.
