RBI makes repo-linked interest rates mandatory

The Reserve Bank of India has made it mandatory for banks to link all of their new loan products, be it personal, housing or auto to an external benchmark like the policy repo rate. 

Stating that transmission of policy rate benefits under the current framework has not been satisfactory, RBI yesterday issued a circular saying that banks will have to link their products to an external benchmark with effect from 1st October 2019.

The circular informs that banks can also choose any benchmark market interest rate published by Financial Benchmarks India



Private Limited - FBIL or the government’s 3-month and 6-month treasury bill yields published by FBIL as their preferred external benchmark.

This move is likely to cheer borrowers ahead of the festive season as banks will now be forced to pass the entire rate cut benefit announced by RBI in recent months and offer lower interest rates.

It may be recalled that in its December policy statement, RBI had announced its intention to make it mandatory for banks to link all new floating interest rate to an external benchmark.