Rate Transmission
How an RBI rate cut reaches a customer's EMI — fast on EBLR loans, slow on MCLR.
Why you care
This answers the question every customer asks: "RBI cut rates — why is my EMI the same?" The honest answer is that not all loans are wired to repo the same way. Knowing the benchmark lets you explain, accurately, why a rate did or didn't move.
Run the numbers
On a 0.25% repo cut, an EBLR borrower's rate drops within ~3 months; an MCLR borrower's barely moves for 6–12 (illustrative). Same RBI action, two very different customer experiences — purely because of the benchmark.
Where this goes
The mismatch in speed is what matters for the bank: when loan rates fall faster than cost of funds, NIM gets squeezed. A rate cut can be bad for a bank's margin short-term, even as it's good for borrowers.
Why you care
Rate transmission is the journey a change in the RBI repo rate takes before it reaches the rate a customer actually pays — fast through repo-linked (EBLR) loans, slow through cost-linked (MCLR) loans.
This answers the question every customer asks you: "RBI cut rates — why is my EMI the same?" The honest answer is that not all loans are wired to repo the same way. Since 2019, RBI forced new retail floating loans onto an External Benchmark Lending Rate (EBLR) — usually repo + a fixed spread — which reprices almost immediately. Older loans sit on MCLR (Marginal Cost of Funds based Lending Rate), which moves slowly because it tracks the bank's own funding cost. Knowing which benchmark a customer is on lets you explain, accurately, why their rate did or didn't move — a small thing that builds real trust.
Run the numbers
RBI cuts the repo rate by 0.25% (from 5.5% to 5.25%). Two home-loan customers:
| Customer | Loan type | What happens |
|---|---|---|
| A (took loan in 2023) | EBLR = repo + 2.25% | Rate drops from 8.75% → 8.50% at the next reset (within ~3 months) |
| B (took loan in 2017) | MCLR-linked | Rate barely moves now; falls only as the bank's own cost of funds drifts down over 6–12 months |
Same RBI action, two very different customer experiences — purely because of the benchmark. On the deposit side, transmission is even slower and stickier, which is exactly what squeezes margins when rates fall.
Where this goes
Transmission is where the regulator's rate finally lands on real customers. The mismatch in speed is what matters for the bank: when loan rates fall faster than cost of funds, the bank's NIM gets squeezed. A rate cut can be bad news for a bank's margin in the short run, even though it's good news for borrowers.