New Delhi: The State Bank of India (SBI), the country’s largest lender, has decided to adopt Repo Rate as the external benchmark for all floating rate loans for MSME, housing and retail loans effective October 1, 2019.
RBI had earlier asked banks to link all new floating rate personal or retail loans (home, auto, etc.) and floating rate loans to Micro and Small Enterprises to external benchmarks from October 01, 2019. SBI had introduced floating rate home loans effective July 1, 2019. A few modifications have been made in the scheme effective from 1st October 2019 to comply with the latest regulatory guidelines.
RBI in its notification dated September 4 has asked all the banks to offer their loans with interest rates linked to an external benchmark. These benchmarks are: a) RBI’s repo rate, b) Government of India 3-month treasury bill yield, c) Government of India 6-month treasury bill yield, d) Any other benchmark market interest rate published by Financial Benchmarks India Private Ltd.
RLLR or repo-linked lending rate means that any changes in the key interest rate by the central bank are passed on directly to the customers, while MCLR or marginal cost-based lending rate is the rate to which all of the banks’ home loans are linked. MCLR is an internal benchmark and it failed to effectively transmit the repo rate to the borrowers.