Current Affairs

RBI mandated to link Retail Loans to External Benchmark

Current context: The RBI has mandated banks to link their fresh retail loans to the external benchmark with effect from 1st October 2019.
RBI mandated to link Retail Loans to External Benchmark
  • The RBI has proposed 3 external benchmarks:
    1. Policy repo rate
    2. The Government of India’s 3-month and 6-month Treasury bill yields published by Financial Benchmarks India Private (FBIL)
    3. Any other benchmark market interest rate published by FBIL
  • The directive is applicable to all Public Sector Banks voluntarily, while the private banks are yet to.
  • Recently, some state-run banks have introduced home and auto loans having repo-linked products but the RBI wants them to add loans to micro, small and medium enterprises (MSMEs) to an external benchmark.
  • RBI has clarified that the final rate charged to the borrowers after the switchover to external benchmark would be same as the rate charged for a new loan of the same category at the time of origination of the loan.

Question: 

Q.1 Which external benchmarks are proposed by the RBI to banks to link their fresh retail loans?
a. Policy repo rate
b. The Government of India’s 3-month and 6-month Treasury bill yields published by Financial Benchmarks India Private (FBIL)
c. Any other benchmark market interest rate published by FBIL
d. All of them
RBI mandated to link Retail Loans to External Benchmark RBI mandated to link Retail Loans to External Benchmark Reviewed by Neha Verma on September 05, 2019 Rating: 5

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