NextFin News - The landscape of Indian credit has undergone a seismic shift as the share of bank loans priced below the 9% interest rate threshold surged to 62.4% by the end of December 2025. This migration toward cheaper capital follows a decisive pivot by the Reserve Bank of India (RBI), which slashed the benchmark repo rate by a cumulative 125 basis points over the course of the year, bringing it down to 5.25% in its final policy meeting of 2025. The data, reflecting a significant expansion from the previous year’s levels, signals that the era of restrictive monetary policy has firmly given way to a cycle of aggressive transmission.
The speed at which commercial lenders have adjusted their portfolios is a direct consequence of the external benchmark-linked lending rate (EBLR) regime. Unlike previous cycles where banks could drag their feet on passing through rate cuts, the current mechanism mandates an almost immediate synchronization with the central bank’s moves. By December 5, 2025, major institutions like the Bank of India had already recalibrated their Repo Based Lending Rates (RBLR) to approximately 8.10%, effectively pulling a vast majority of retail and MSME borrowers into the sub-9% bracket. This is not merely a statistical milestone; it represents a massive reduction in the debt-servicing burden for millions of households and small enterprises.
For the Indian corporate sector, the implications are equally profound. The rise in sub-9% credit availability has triggered a wave of refinancing as firms move to replace high-cost legacy debt with cheaper facilities. This liquidity surge comes at a critical juncture for U.S. President Trump’s administration, which has been closely watching global interest rate trends to gauge the competitiveness of American manufacturing against emerging markets. In India, the lower cost of capital is expected to act as a catalyst for the long-awaited private capital expenditure cycle, which had remained tepid during the high-rate environment of 2023 and 2024.
However, the transition has not been without friction for the banking sector’s balance sheets. While loan volumes are expanding, net interest margins (NIMs) are facing renewed pressure. Banks are finding themselves in a pincer movement: lending rates are falling automatically due to the EBLR link, but the cost of deposits remains "sticky" as savers resist lower returns in a still-recovering inflationary environment. To maintain profitability, lenders are increasingly pivoting toward unsecured high-yield segments, a move that has already drawn cautionary glances from regulators concerned about potential credit quality dilution in the retail space.
The broader economic narrative suggests that the RBI’s gamble on growth is paying off. By facilitating a environment where nearly two-thirds of all bank credit is priced in the single digits, the central bank has effectively lowered the hurdle rate for new investments. As the 2026 fiscal year begins, the focus shifts from the availability of cheap credit to the quality of its deployment. The surge to 62.4% marks the peak of the transmission cycle, leaving the market to wonder how much further the floor can drop before inflationary pressures or margin constraints force a reversal.
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