The Reserve Bank of India has made it mandatory for banks to link their retail and MSME loans to external interest rate benchmarks in its biggest push to make its interest rate decisions effective and suggested a bunch of rates that lenders could choose from. Home, car and personal loans for travel are expected to fall benefiting borrowers.
This new norm will be effective October 1 where banks have to migrate from the Marginal Cost of Lending Rate regime to external benchmarking and banks will have the freedom to choose which one to follow.
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It has come up with rules that would also prohibit banks from gaming the system although it has left the risk premium charges to be decided by the bank depending on the credit profile of the borrower. The interest rate under external benchmark shall be reset 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 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,” RBI said.
Source: Economic TImes
