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RBI Rate Hikes: Who Benefits and Who Pays?
8 Oct
Summary
- Education loans saw the strongest rate cut transmission in the last easing cycle.
- Housing and MSME loans benefited significantly due to rate sensitivity.
- Corporate lending transmission was slower, with retail and MSME segments being competitive.
The Reserve Bank of India's recent move to raise the repo rate marks the conclusion of its easing phase. An analysis of data from February 2025 to July 2026 reveals that the strongest transmission of rate cuts was observed in education loans, followed by MSME, housing, and other personal loans. Education loan interest rates decreased by 162 basis points for fresh loans and 122 basis points for outstanding loans.
This period saw a significant 112 basis points transmission to MSMEs and 107 basis points for housing loans. Despite this, growth in education loan demand slowed from 19.6% in August 2023 to 13.2% in August 2026. Housing loan growth also decelerated sharply, prompting more aggressive rate cuts in these interest-rate sensitive sectors.
Competition among banks in the retail and MSME segments contributed to faster transmission, while large corporate lending saw slower transmission due to already fine-tuned pricing. Looking ahead, the RBI's tightening phase is expected to lead to a gradual moderation in credit growth for rate-sensitive segments like housing and MSMEs as borrowing costs increase.
Infrastructure and large corporate lending are anticipated to remain resilient, partly due to attractive bank funding amidst elevated bond yields. Similarly, the education sector is expected to be relatively resilient, with demand driven by long-term aspirations rather than short-term interest rate fluctuations.
