On 4 September 2019, the Reserve Bank of India issued a circular telling banks to peg new floating-rate retail and small-business loans to an external benchmark. The rule kicked in 1 October. Six and a half years later, that single regulatory move is the reason a 25 bps repo cut shows up in your home-loan EMI within a quarter instead of never.
Before October 2019, your home loan was priced off something called MCLR, the Marginal Cost of Funds based Lending Rate. The acronym sounds technical. The mechanism was simple. Each bank computed its own cost of raising new deposits, added a small spread, and called the result MCLR. Your loan moved when that internal number moved. If RBI cut the repo rate, the bank had the discretion to pass it on, delay it, or simply not pass it. Many banks chose option three.
What MCLR was, and what it wasn't
MCLR replaced an even older benchmark called the Base Rate in April 2016. The intent was transparency. Banks had to publish their MCLR across tenors: overnight, one month, three months, six months, one year. The one-year MCLR became the popular reference for home loans because most banks reset retail loans annually. SBI, HDFC Bank, ICICI, Axis, Kotak: each published its own number.
The problem was not the formula. The formula was fine. The problem was that the rate depended on a bank's own funding mix. If a bank had a lot of low-cost CASA deposits, its MCLR sat low. If it leaned on bulk term deposits at higher rates, its MCLR sat high. Neither moved much when the repo moved. Studies by the RBI's own Internal Working Group, published through 2017 and 2018, found that less than half of a typical repo cut reached MCLR within a year. The transmission was sticky, and it was sticky in one direction. Banks were quick to raise MCLR when rates rose and slow to cut it when rates fell.
Why 2019 happened
Through 2019, RBI cut the repo rate four times, taking it from 6.50% to 5.40%. The cumulative cut was 110 bps. The banking system passed through about 40 bps on average to retail borrowers over the same window. RBI was frustrated. The monetary policy committee wrote in its August 2019 minutes that the transmission was inadequate and that structural change was needed.
The September circular was the structural change. Beginning 1 October 2019, every scheduled commercial bank had to link new floating-rate loans to retail and small-and-medium-enterprise borrowers to one of four external benchmarks: the RBI policy repo rate, the 3-month T-bill yield, the 6-month T-bill yield, or any other benchmark interest rate published by FBIL. Nearly every bank picked option one. The repo rate is the visible, headline number, and it is also the one RBI directly controls.
That is why the acronym you see on most home-loan sanction letters today reads RLLR or EBLR: Repo-Linked Lending Rate or External Benchmark Lending Rate. Mathematically: EBLR equals the repo rate plus a spread set by the bank. The spread accounts for the bank's cost of funds, its operating cost, its desired margin, and a credit risk premium attached to the borrower. The bank can change the spread for new loans, but for an existing borrower the spread is fixed at the time of sanction and stays put.
How EBLR actually transmits the repo move
The RBI circular sets the rules. Banks must reset the EBLR-linked rate at least once every three months. Most banks do it on the 1st of January, April, July, and October. So if RBI cuts the repo on 6 February, your EMI does not move on 7 February. It moves on the next reset date, which would be 1 April. The lag is built into the system.
Once the reset hits, the math is mechanical. Repo was 5.50%. Your EBLR was repo plus 2.30%, that is 7.80%. RBI cuts 25 bps to 5.25%. At the next reset, your EBLR drops to 7.55%. Whatever EMI calculation runs on top of that drop reduces your monthly payment by an amount that depends on your remaining tenure and outstanding principal. For a ₹50 lakh loan at year 5 of a 20-year tenure, a 25 bps cut typically shaves about ₹650 to ₹800 off the EMI. Not transformational, but it is real and it is automatic.
What pre-2019 borrowers can do
If your home loan was sanctioned before October 2019, it is almost certainly still on MCLR. The 2019 rule applied only to new loans. RBI did not force banks to move legacy MCLR borrowers to EBLR. Some banks offered the switch with a small conversion fee, others did not bother.
For a borrower whose loan still sits on MCLR, the question is whether to convert. There is no universal answer. EBLR follows the repo, so it falls faster when rates fall and rises faster when rates rise. If you expect the repo to keep falling, converting helps. If you expect rates to harden, MCLR's stickiness on the way up actually protects you for a quarter or two. Conversion fees range from 0.25% to 0.50% of the outstanding principal. Math it both ways before you sign.
Almost every retail home-loan portfolio in India is now overwhelmingly on EBLR. Banks publish the split in their quarterly results. As of HDFC Bank's December 2025 disclosure, 96.4% of its retail floating-rate book sat on EBLR. SBI's number was 94.7%. The few pre-2019 holdouts in the system mostly belong to borrowers who simply never converted.
Why MCLR isn't dead
MCLR did not disappear. The 2019 rule was narrow: it covered floating-rate retail loans and small-business loans. Everything else stayed on MCLR. That means corporate term loans, working-capital lines for mid-and-large companies, and the vast majority of the loan book at most banks is still priced off MCLR or against direct bond-market benchmarks.
Banks still publish their MCLR curve every month. You can watch them on Capera's loan-rates board. The 1-year MCLR is the most-quoted number because it serves as the reference for most corporate facilities. As of May 2026, the average 1-year MCLR across the 15 banks we track sits at 8.83%, against an average EBLR of 7.61%. The 122 bps spread is roughly the difference between a bank's internal funding cost and the repo-plus-spread world of EBLR. That spread is a useful tell about how aggressively a bank wants to deploy capital to retail versus corporate.
The takeaway
If you are taking a fresh retail floating-rate loan in 2026, you are on EBLR. The spread your bank quotes is the only variable to negotiate, because the repo rate is what it is. The spread varies meaningfully across banks: HDFC Bank at 2.25%, SBI at 2.65%, PNB at 2.60%, IndusInd at 3.35%. On a ₹50 lakh, 20-year loan, the gap between HDFC's spread and IndusInd's is roughly ₹3,000 in monthly EMI, which is a difference of about ₹7.2 lakh in total interest paid.
The 2019 circular did something narrower than people remember. It did not change every loan in India. It changed the way new retail and small-business floating-rate loans transmit a repo move, which is enough for most people. For the rest of the system, MCLR is still the number to watch.
Capera tracks live EBLR and MCLR across 15 Indian banks daily. See the current loan-rate leaderboard or compute your EMI with today's actual EBLR on the loan EMI calculator.
