Following the Reserve Bank of India's (RBI) recent decision to cut the repo rate, Indian Overseas Bank (IOB) has announced a reduction in its repo-linked lending rate (RLLR) by 50 basis points, bringing it down to 8.35% from 8.85%. This revision, effective from June 12, 2025, is expected to make loans more affordable for both new and existing borrowers, aligning with the broader trend of banks passing on the benefits of the RBI's policy easing.

The RBI's Monetary Policy Committee (MPC), headed by Governor Sanjay Malhotra, voted to lower the benchmark repurchase or repo rate by 50 basis points to 5.5%. This move, accompanied by a reduction in the cash reserve ratio (CRR) by 100 basis points to 3%, aims to inject liquidity into the banking system and stimulate economic growth. The current reduction marks a total decrease of 100 basis points in interest rates since February 2025, with initial cuts made in February and April.

IOB's decision to lower its RLLR is a direct response to the RBI's policy adjustment. The RLLR serves as an external benchmark for many floating-rate loans, meaning that changes in the repo rate are immediately reflected in the interest rates charged on these loans. This provides quick relief to borrowers, as it reduces their equated monthly installments (EMIs) or shortens their loan tenures.

Several other banks have also taken similar steps to reduce their lending rates. Canara Bank has slashed its RLLR from 8.75% to 8.25%, while Union Bank of India has revised its External Benchmark Lending Rate (EBLR) and RLLR by 50 basis points. Punjab National Bank (PNB) has cut its RLLR to 8.35%, and Bank of Baroda has reduced its RLLR to 8.15%. These widespread rate cuts are expected to benefit home loan borrowers, small businesses, and the MSME sector, as these loans are often linked to external benchmarks like the RBI's repo rate.

However, some analysts suggest that while existing borrowers will benefit from the automatic reduction in rates, new borrowers may not receive the full benefit. Banks are expected to adjust the spread they charge over the repo rate to protect their margins. Additionally, to preserve profitability, banks may lower returns on fixed deposits, which could make them less attractive to savers.

Despite these potential adjustments, the overall impact of the rate cuts is expected to be positive for the economy. Lower borrowing costs should stimulate credit demand, encouraging investment and consumption. This is particularly important for the MSME sector, which relies heavily on bank loans for its operations.

In addition to the rate cut, IOB reported a strong performance for the March quarter, with a 30% rise in net profit to ₹1,051 crore and a 13% year-on-year increase in net interest income to ₹3,123 crore. The bank has also made significant progress in reducing its non-performing assets (NPAs), with gross NPAs down to 2.14% and net NPA falling to 0.37%. Furthermore, the bank's board has approved plans to raise up to ₹4,000 crore in equity capital and ₹1,000 crore through Tier-II bonds, which will further strengthen its financial position.