State Bank of India, the country’s largest lender has linked all its floating rate loans to individuals and medium and small enterprises (MSMEs) to the Reserve Bank of India’s (RBI) benchmark repo rate. In a media release the bank said that all floating rate loans will be linked to the RBI’s repo rate effective from October 1, 2019.
SBI’s move follows a RBI direction to all banks asking them to link their lending rates to an external benchmark with a view to improve transmission of monetary policy.
The RBI circular on September 4 had asked banks to link all new floating rate retail loans like home, auto and personal loans and also loans to micro and small enterprises to external benchmarks from October 1, 2019.
The central bank had given banks the option of linking the rates to either RBI’s repo rate, the government’s three-month or six month treasury bill yield or any other benchmark market interest rate published by the Financial Benchmarks India Private.
Before the RBI had mandated banks to link their rates to an external benchmark, SBI had taken the lead by introducing floating rate home loans effective from July 1, 2019. “A few modifications have been made in the scheme effective 1st October 2019 to comply with the latest regulatory guidelines. Further details will be made available on the bank’s website,” SBI said.
Some other banks have also linked their loans to an external benchmark. For example Allahabad Bank, announced a similar linkage with external Benchmark Rates published by FBIL. The bank will offer housing, car, education, personal, consumer loans and loans to micro & small enterprises at RBI’s repo rate and 3-month Mumbai Interbank Offer Rate (MIBOR) as the benchmark rates.
“With the introduction of these products, the bank is passing on the benefit of lower interest rate to the customers in the range of 5 bps to 150 bps from the existing rate of interest,” Allahabad Bank said.