Every two months, the same headline: "RBI cuts repo rate, EMIs to fall." Or rise, or stay put. And every two months, a set of borrowers check their bank app the next morning and find nothing has changed.
That is not a mistake by the bank, usually. A repo rate change reaches your loan through a chain of benchmarks, reset dates and defaults, and each link has its own timing. This post explains that chain, puts rupee numbers on it, and is updated after each MPC meeting.
# Where things stand (as of 23 September 2026)
| Item | Position |
|---|---|
| Policy repo rate | 5.25% |
| Standing Deposit Facility rate | 5.00% |
| Marginal Standing Facility rate and Bank Rate | 5.50% |
| Last MPC decision | 5 August 2026 (meeting of 3 to 5 August): repo unchanged, neutral stance, unanimous |
| Last change in repo rate | 0.25% cut to 5.25% in December 2025 |
| Next MPC meeting | 5 to 7 October 2026, decision on 7 October |
| Remaining meetings in 2026-27 | 2 to 4 December 2026; 3 to 5 February 2027 |
In 2025 the repo rate came down by a total of 1.25 percentage points, from 6.50% to 5.25%, over four cuts. At the August 2026 meeting the RBI flagged higher oil and food prices as near-term inflation risks. If you want to understand why those matter to your household, our pieces on the crude oil price surge and the rupee's weakness cover the transmission from the other end.
# How a repo change reaches a home loan
# Repo-linked (EBLR) loans
Since October 2019, banks have had to link new floating-rate retail loans, including home loans, to an external benchmark. Most use the RBI repo rate. Your rate is the benchmark plus a spread that the bank fixes at sanction.
Under the RBI (Commercial Banks – Interest Rate on Advances) Directions, 2025, issued on 28 November 2025, the interest rate under an external benchmark must be reset at least once in three months. So if the repo is cut on 7 October, a bank with a quarterly reset may pass it on at your next reset date, which could be weeks or nearly three months away. Reset frequency varies by lender; your sanction letter says which.
The spread is largely fixed at sanction, and lenders can revise it only in limited circumstances, such as a substantial change in your credit assessment. That is why a repo-linked loan tracks the repo quite closely, in both directions.
# MCLR-linked loans
Older loans, and some lenders' products, are linked to the bank's Marginal Cost of Funds based Lending Rate. The same directions allow MCLR reset periodicity of one year or less, and many home loans use the one-year MCLR with an annual reset. Two lags stack up: MCLR itself moves only as the bank's cost of funds changes, and your loan picks up the new MCLR only on its reset date.
If you are on MCLR and the gap to repo-linked rates is wide, the directions allow existing borrowers to switch to an external benchmark on mutually acceptable terms. Compare the new spread and any administrative charge before switching.
# NBFCs and housing finance companies
External benchmark linking is compulsory for commercial banks, not for NBFCs and HFCs. Many price loans on their own reference rate, which follows their funding cost. Transmission can be slower and less predictable.
# What is coming: the August 2026 draft
In August 2026 the RBI released draft Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026, with comments invited until 11 September 2026. As proposed, they would harmonise rules across banks, NBFCs and other lenders from 1 April 2027: floating-rate loans would reset at an interval chosen by the lender but not exceeding three months and fixed for the life of the loan; the non-credit parts of the spread could not be revised for three years; and existing loans would migrate by 1 April 2029 without charge. This is a draft. The final version may differ, and this post will be updated when it is issued.
# The choice you get at reset: lower EMI or shorter tenure
Under the RBI's August 2023 circular on reset of floating interest rates on EMI-based personal loans, which covers home loans, lenders must give you the option at reset of changing the EMI, the tenure, or a combination, and the option to prepay. Lenders apply a default if you do nothing, and that default is not always the one you would choose. Ask which one your lender applies.
When rates fall, the choice matters a lot. Here is the arithmetic.
Assumptions, for illustration: loan of ₹50 lakh, 20 years (240 EMIs), rate 8.00%, falling by 0.25% to 7.75%. Monthly reducing balance.
# Case 1: the cut comes at the start of the loan
| EMI | Months | Total interest | Interest saved | |
|---|---|---|---|---|
| Original at 8.00% | ₹41,822 | 240 | ₹50,37,281 | — |
| 7.75%, lower EMI, same tenure | ₹41,047 | 240 | ₹48,51,383 | ₹1,85,898 |
| 7.75%, same EMI, shorter tenure | ₹41,822 | 230 (last EMI ₹30,817) | ₹46,08,056 | ₹4,29,225 |
The lower-EMI option frees up ₹775 a month. The shorter-tenure option saves more than twice as much interest and ends the loan ten months earlier.
# Case 2: the cut comes after five years
A cut rarely lands on day one. After 60 EMIs at 8.00%, the outstanding principal is ₹43,76,279 with 180 months to go.
| EMI | Remaining months | Remaining interest | Interest saved | |
|---|---|---|---|---|
| Continue at 8.00% | ₹41,822 | 180 | ₹31,51,681 | — |
| 7.75%, lower EMI | ₹41,193 | 180 | ₹30,38,435 | ₹1,13,246 |
| 7.75%, same EMI | ₹41,822 | 175 | ₹29,41,484 | ₹2,10,197 |
Before you prepay or shorten a loan, check what you give up on tax. If you are in the old regime and claim home loan interest, our home loan tax benefits guide shows how a lower interest outgo changes the deduction.
# Fixed deposits: only new money feels it
A repo change does not touch the rate on an FD you already hold. The rate you booked is the rate until maturity. It affects new deposits and renewals, and banks adjust deposit rates on their own schedule, often with a lag.
The scale is modest. On ₹10 lakh renewed at 0.25% less, you earn ₹2,500 a year less before tax.
What people do with this:
- When cuts are expected, locking a portion into longer tenures before banks revise rates.
- When hikes are expected, keeping tenures short so money rolls over at higher rates.
- When unsure, laddering deposits across maturities so part of the money reprices every year.
None of this works if the forecast is wrong, and the forecast is often wrong. Laddering is the choice that does not depend on being right. Keep your emergency money liquid regardless; see the emergency fund guide.
# Debt funds: duration decides the effect
Bond prices move opposite to yields. The approximate NAV change for a change in yield is the fund's modified duration multiplied by that change. Market yields do not move one-for-one with the repo rate, and they often move before the MPC does, on expectations. Taking a 0.25% fall in yields as an illustration:
| Modified duration | Approximate NAV change if yields fall 0.25% |
|---|---|
| 0.5 years | +0.125% |
| 1 year | +0.25% |
| 3 years | +0.75% |
| 6 years | +1.5% |
| 10 years | +2.5% |
Reverse the signs for a rise. This ignores convexity and changes in credit spreads, so treat it as a rough guide. The fund factsheet gives the duration.
Debt fund units bought on or after 1 April 2023 are taxed at your slab rate whenever you redeem, so a gain from a rate cut is taxed like interest. The mutual fund taxation guide has the detail.
# Three mistakes borrowers make after a cut
Assuming the bank will pass it on automatically, and correctly. On a repo-linked loan it should, at the next reset. Check the rate on your statement after that date. If it has not moved, ask in writing; if the reply does not satisfy you, the lender's grievance process and then the RBI's complaint route are open to you.
Staying on an old benchmark out of inertia. Borrowers on base rate or MCLR loans taken years ago are sometimes paying noticeably more than new borrowers with the same profile. The cost of asking for a conversion is a letter and perhaps a modest administrative fee.
Treating the EMI as the only number. A lower EMI with the same tenure feels like a saving each month, but the table above shows it leaves more than half the possible interest saving on the table. If the extra ₹775 a month is not needed, let the tenure shrink instead.
# A checklist for each MPC day
- Note the decision and effective date on the RBI's press release.
- Check your loan's benchmark (repo, MCLR or lender's own rate) and next reset date.
- At reset, decide whether you want the change in EMI or tenure, and tell the lender in writing.
- For MCLR or NBFC loans, compare your rate with what new borrowers are offered.
- For FDs due in the next few months, decide on tenure before the bank revises rates.
- For debt funds, check whether your fund's duration still matches when you need the money.
# Update log
This post is updated after each MPC meeting with the decision, the new rates and any change in lending rules.
| Date | Update |
|---|---|
| 23 September 2026 | First published. Repo 5.25% (unchanged at the 5 August 2026 meeting). Next decision due 7 October 2026. RBI draft Interest Rates on Loans and Advances Directions, 2026 under consultation. |
Know what the next rate change means for your own loan before your bank tells you. VittSphere ONE's EMI & Loan Manager shows each loan's outstanding, reset date and the effect of a rate move on EMI and tenure, and ARTHA answers the follow-up questions in Hinglish or English. Start free →
# References (verified 23 September 2026)
- Reserve Bank of India: homepage, current policy rates
- RBI press release: Monetary Policy Committee meeting schedule for 2026-27 (23 March 2026)
- Outlook Money: RBI MPC August 2026 decision, repo unchanged at 5.25%
- BankBazaar: Repo rate history 2025
- Taxguru: RBI (Commercial Banks – Interest Rates on Advances) Directions, 2025
- Taxguru: RBI circular on reset of floating interest rate on EMI-based personal loans (18 August 2023)
- Upstox: RBI floats harmonised interest rate rules for banks and NBFCs (August 2026 draft)
- Business Standard: RBI's new loan rules, faster rate resets and tighter spreads (August 2026)
Disclaimer: This article is educational and general in nature. VittSphere ONE is not a lender, bank or SEBI-registered Investment Adviser and does not recommend any loan, deposit or fund. Policy rates and meeting dates are as published by the RBI and verified on the date below; they change at each MPC meeting. Loan, FD and debt fund figures are illustrations on stated assumptions, not quotes or forecasts. Your lender's benchmark, spread, reset date and default option are set out in your sanction letter; confirm them with the lender. Data verified 23 September 2026.
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