Don’t miss the latest developments in business and finance.
Home / Finance / News / RBI's external benchmark move: All but a few link retail loan to repo rate
RBI's external benchmark move: All but a few link retail loan to repo rate
According to the Reserve Bank of India rules, banks can choose between repo, treasury rates, or any benchmark set by Financial Benchmark India Private Ltd for the rate setting purpose
All public sector banks, and major private sector banks, have chosen repo rate as their external benchmark for pricing retail loans, except for those who are not focused on home loans.
For example, IndusInd Bank management said on Thursday that the bank has linked their floating rate retail portfolio of about Rs 10,000 crore to 6-months certificates of deposits (CD) rates.
According to the Reserve Bank of India rules, banks can choose between repo, treasury rates, or any benchmark set by Financial Benchmark India Private Ltd (FBIL) for the rate setting purpose. IndusInd has chosen the CD rate published by FBIL for this purpose.
“Most of our retail loans, especially the entire vehicle loans, are fixed rate. The floating loan portfolio is not more than Rs 9-10,000 crore for us. CD rates are a better benchmark for us,” said Romesh Sobti, managing director and CEO of IndusInd Bank in the press meet on Thursday.
Other private banks had initially opposed linking their lending rates to repo, saying repo rate was volatile, but RBI mandated every bank to link their floating rate to an external benchmark, repo being one of them. However, State Bank of India (SBI) had in May linked its home loan to repo, much before the RBI came up with the mandate.
Now, banks are asking the RBI to make it mandatory to link deposit rates to external benchmark as well. They themselves don’t want to do it, but it would be easy if the regulator mandates it.
However, the regulator is in no mood to do so.
“Banks have enough flexibility in their existing deposit structure to allow such flexible retail loans. The RBI doesn’t see a reason to make deposit rates floating too, especially as not the entire lending book of banks is floating,” said a person familiar with RBI thinking.
To read the full story, Subscribe Now at just Rs 249 a month