RBI stated banks must mandatorily link all new floating rate loans to MSME to an external benchmark from October 1 , 2019.
Central Bank observed that due to various reasons, the transmission of policy rate changes to the lending rate of banks under the MCLR framework had not been satisfactory.
After this implementation, the loan rates will be reset every 3 months.
In doing so banks have been allowed to choose any of external benchmark say for instance repo rate.
The other options available to banks include
- 3 month T-Bill
- 6 month T-Bill or any other FBIL benchmark
For the existing floating rate customers, there will be no additional charges other than administrative or legal fees when switching to new external benchmarking rates
Lender cannot adopt multiple benchmarks within a loan category.