RBI mandated to link Retail Loans to External Benchmark

Published on September 05, 2019
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

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