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Starting April 1, 2019 retail loans to be pegged to external benchmarks, says RBI

Starting April 1, 2019 retail loans to be pegged to external benchmarks, says RBI

Starting April 1, 2019 retail loans to be pegged to external benchmarks, says RBI
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By CNBC-TV18 Sept 9, 2019 6:21:02 PM IST (Updated)

Reserve Bank of India (RBI), in its bi-monthly monetary policy document on Wednesday said starting April 1, 2019 retail loans will be pegged to external benchmarks.

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RBI said, "It is proposed that all new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans to Micro and Small Enterprises extended by banks from April 1, 2019 shall be benchmarked to one of the
following..."
  • Reserve Bank of India policy repo rate, or
  • Government of India 91 days Treasury Bill yield produced by the Financial Benchmarks India Private Ltd (FBIL), or
  • Government of India 182 days Treasury Bill yield produced by the FBIL, or
  • Any other benchmark market interest rate produced by the FBIL
  • RBI said, "The spread over the benchmark rate — to be decided wholly at banks’ discretion at the inception of the loan — should remain unchanged through the life of the loan, unless the borrower’s credit assessment undergoes a substantial change and as agreed upon in the loan contract."
    Banks are free to offer such external benchmark linked loans to other types of
    borrowers as well, it said.
    "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 final guidelines will be issued by the end of December 2018, RBI concluded.
    RBI, in its bi-monthly monetary policy, decided to keep repo rates unchanged at 6.50 percent.
    Dinesh Kumar Khara, managing director of Risk, IT & Subsidiaries wing, State Bank of India SBI said,"They (RBI) have given fair amount of option in terms of linking it (retail loan) with the external benchmarks. Eventually, we were to move into this direction."
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