Indian households and small businesses could be in for some relief, as lower lending rates start to take effect across the financial system. According to an SBI Research report, the potential savings for borrowers in the ₹50,000-₹60,000 range, assuming that around 80% of retail and MSME loan portfolios are linked to external benchmark lending rates (EBLR). This is thanks to the transmission of reduced interest rates by financial institutions (FIs).

The report notes that rate-cutting cycles typically last for about two years, which means the interest burden for households may decline further in the coming quarters. This also aligns with the Reserve Bank of India’s (RBI) efforts to support growth while keeping inflation in check.

For many market participants, the RBI’s 50-basis-point rate cut was unexpected. However, SBI Research explains that large rate cuts have been more common than small ones since 2001, especially during economic volatility such as the global financial crisis or the taper tantrum. The June policy marks the first such jumbo cut after the post-2020.

Importantly, the RBI has also changed its policy stance from “accommodative” to “neutral.” According to the report, this indicates a move from “time-based” forward guidance, where actions are pre-committed over a set period, to a more flexible “state-based” approach that depends on the economic situation.

The report clarifies that this shift should not be mistaken for a pause in rate cuts. Rather, it reflects the RBI’s effort to maintain flexibility while managing inflation, liquidity, and growth. “This is a conscious regulator trying to manage the yield curve, ensure adequate liquidity, and support durable growth,” SBI Research observed.

The central bank’s recent decision to cut the Cash Reserve Ratio (CRR) is also aimed at increasing liquidity. The report estimates that the money multiplier could cross 6% in FY26 due to the CRR cut and growing digitisation, even as reserve money growth slows.

Further, new liquidity coverage ratio (LCR) norms could free up lending resources of up to ₹2.7 lakh crore, creating room for 1.5% additional credit growth and helping fuel capital formation in the economy.