Take the pledge to vote

For a better tommorow#AajSawaroApnaKal
  • I agree to receive emails from News18

  • I promise to vote in this year's elections no matter what the odds are.
  • Please check above checkbox.

    SUBMIT

Thank you for
taking the pledge

Vote responsibly as each vote counts
and makes a diffrence

Disclaimer:

Issued in public interest by HDFC Life. HDFC Life Insurance Company Limited (Formerly HDFC Standard Life Insurance Company Limited) (“HDFC Life”). CIN: L65110MH2000PLC128245, IRDAI Reg. No. 101 . The name/letters "HDFC" in the name/logo of the company belongs to Housing Development Finance Corporation Limited ("HDFC Limited") and is used by HDFC Life under an agreement entered into with HDFC Limited. ARN EU/04/19/13618
LIVE TV DownloadNews18 App
News18 English
News18 » Business
2-min read

RBI Makes it Mandatory for Banks to Link Retail Loans with External Benchmarks from October 1

The interest rate under the external benchmark shall be reset at least once in three months, the Reserve Bank of India said.

PTI

Updated:September 4, 2019, 9:25 PM IST
facebookTwitterskypewhatsapp
RBI Makes it Mandatory for Banks to Link Retail Loans with External Benchmarks from October 1
A Reserve Bank of India (RBI) logo is seen at the gate of its office in New Delhi. (Reuters Photo)
Loading...

Mumbai: The RBI has made it mandatory for banks to link all new floating-rate loans for housing, auto and MSMEs to an external benchmark like repo from October 1, a move aimed at ensuring faster transmission of policy rate cuts to borrowers.

Industry and retail borrowers have been complaining that banks do not pass on the entire RBI's policy rate (repo rate) reduction to them.

In a circular issued on Wednesday, the Reserve Bank of India (RBI) said it has been observed that due to various reasons, the transmission of policy rate changes to the lending rate of banks under the current marginal cost of funds based lending rate (MCLR) framework has not been satisfactory.

Therefore, it has now decided to make "it mandatory for banks to link all new floating rate personal or retail loans and floating rate loans to MSMEs (micro, small and medium enterprises) to

an external benchmark effective October 1, 2019", the circular said.

In 2019, the Reserve Bank has already reduced the repo or short-term lending rate by 110 basis points, but the banks have reportedly passed on only up to 40 bps to borrowers.

The external benchmarks, to which the banks will be required to link their lending rates, could be repo, 3-month or 6-month treasury bill yield, or any other benchmark published by the

Financial Benchmarks India Private Ltd (FBIL).

The banks have also been asked to reset the interest rate under the external benchmark at least once in three months.

"In order to ensure transparency, standardisation, and ease of understanding of loan products by borrowers, a bank must adopt a uniform external benchmark within a loan category; in other words, the adoption of multiple benchmarks by the same bank is not allowed within a loan category," the RBI added.

The circular further said while the banks are free to decide the spread over the external benchmark, the credit risk premium "may undergo change only" when borrower's credit assessment undergoes a substantial change.

Further, other components of spread including operating cost could be altered once in three years.

Existing loans and credit limits linked to the MCLR/Base Rate/BPLR shall continue till repayment or renewal, as the case may be.

The decision of the RBI assumes significance amid the clamour for reducing borrowing cost to push consumer demand, which is one of the major reasons for the slowdown in the economy.

High-frequency indicators like a significant drop in auto sales and other consumer non-durable are pointing towards demand slowdown.

The government has announced a slew of measures like liquidity support to the NBFC sector to further push credit disbursal.

The RBI had earlier asked the banks to link the rates to external benchmark from April 1, but it was deferred as the lenders wanted more time.

The State Bank of India had become the first bank to link its certain loans to the repo. Later, a host of other banks too started linking their loan products to the repo or other external benchmarks.

In August 2017, the RBI had constituted an Internal Study Group (ISG) to examine the working of the MCLR system that was put in place on April 2016.

The ISG had recommended the move over to an external benchmark based lending rate system.

Get the best of News18 delivered to your inbox - subscribe to News18 Daybreak. Follow News18.com on Twitter, Instagram, Facebook, Telegram, TikTok and on YouTube, and stay in the know with what's happening in the world around you – in real time.

Read full article
Loading...
Next Story
Next Story

Also Watch

facebookTwitterskypewhatsapp
Most Active
Company Price Change %Gain
HDFC 2,049.30 3.78
Maruti Suzuki 6,591.95 10.39
ICICI Bank 417.50 7.99
HDFC Bank 1,199.60 8.95
Reliance 1,254.35 6.39
Company Price Change %Gain
Astral Poly Tec 1,213.70 5.25
HDFC 2,052.10 3.92
SBI Life Insura 815.85 1.73
Zee Entertain 301.10 -2.49
Maruti Suzuki 6,585.25 10.89
Top Gainers
Company Price Change %Gain
Eicher Motors 17,860.20 13.38
Hero Motocorp 2,862.90 13.06
IndusInd Bank 1,419.60 10.71
UltraTechCement 4,269.65 10.43
Maruti Suzuki 6,591.95 10.39
Company Price Change %Gain
Hero Motocorp 2,866.50 13.19
Maruti Suzuki 6,585.25 10.89
IndusInd Bank 1,419.60 10.74
Bajaj Finance 3,705.60 10.19
SBI 301.70 10.09
Top Losers
Company Price Change %Gain
Power Grid Corp 196.20 -2.46
Zee Entertain 301.40 -2.41
Infosys 805.00 -1.91
TCS 2,065.45 -1.74
NTPC 119.85 -1.52
Company Price Change %Gain
Power Grid Corp 196.35 -2.39
Infosys 805.10 -1.94
TCS 2,065.60 -1.74
NTPC 119.90 -1.52

Live TV

Countdown To Elections Results
To Assembly Elections 2018 Results