RBI mandates banks to link fresh retail loans to external benchmark

Move to cover fresh retail, MSME loans from Oct 1; home, auto loans to get cheaper

The Reserve Bank of India (RBI) on Wednesday made it mandatory for banks to link all their fresh retail loans to an external benchmark, effective October 1 — the central bank’s repo rate being one such benchmark.

All public sector banks have moved to such a regime voluntarily, while private banks are yet to. The state-run banks have introduced repo-linked products for floating-rate home and auto loans, but the RBI said loans to micro, small and medium enterprises (MSMEs) should also be linked to an external benchmark.

The three external benchmarks the RBI proposed are policy repo rate, the Government