RBI Governor asks banks to bring down cost of banking business amid recent rate cut

Intermediation cost refers to the cost of running the banking business—the expenses banks incur to mobilise deposits, extend loans, manage risks, operate branches and digital channels, pay employees, comply with regulations and maintain technology infrastructure. Lower intermediation costs allow banks to offer more competitive rates to borrowers and depositors.

Credit offtake on a sequential basis rose in October 2025 to 11.1 per cent from 10.2 per cent in September 2025. However, credit growth slowed year-on-year (y-o-y), with non-food credit increasing by 11.1 per cent, compared to 11.7 per cent in October 2024. Credit growth strengthened across major sectors, except for agriculture. Sequential improvement was supported by festive-season demand and the impact of GST rate cuts, particularly boosting automobile loans, unsecured personal loans, and consumer durables.

Following the repo rate cut, banks have begun reducing their benchmark lending rates, including the Marginal Cost of Funds-based Lending Rate (MCLR), the Repo-Linked Lending Rate (RLLR) and RBLR-linked rates. This marks the start of a transmission cycle that could lead to lower equated monthly instalments (EMIs) or shorter loan tenures for eligible home, vehicle and personal loan borrowers.

HDFC Bank has reduced its MCLR by up to 5 basis points across tenures. After the revision, its MCLR now ranges between 8.30 per cent and 8.55 per cent, compared with 8.35 per cent to 8.60 per cent earlier, providing relief to borrowers whose loans are benchmarked to these rates. Meanwhile, Punjab National Bank has cut its RLLR from 8.35 per cent to 8.10 per cent—inclusive of a 10-basis-point Benchmark Spread Premium—with effect from December 6, 2025. In a filing to the BSE, the bank said the revision follows the repo rate cut announced by the RBI on December 5.

Malhotra noted that while the banking sector has shown steady improvement in asset quality, capital buffers and profitability in 2025, lenders must avoid complacency and remain vigilant in a rapidly changing macro-financial environment. Stressing the need for better customer service, he asked banks to focus on reducing grievances, strengthening internal controls and improving turnaround times. He cautioned against the rising incidence of digital frauds, urging banks to deploy more robust, intelligence-driven fraud-monitoring systems.

Appreciating the progress made on re-KYC updates and the handling of unclaimed deposits, the Governor encouraged banks to intensify customer outreach and enhance awareness campaigns. Malhotra also reiterated the RBI’s consultative approach to regulation, pointing to recent initiatives aimed at the consolidation, streamlining and simplification of the regulatory framework.