Banks must appropriately price in credit risk: Ex-RBI deputy guv Thorat

Usha Thorat says it's absolutely essential for financial stability that bank spreads are not under threat

With the Reserve Bank of India (RBI) deciding to implement linking of retail and micro, small and medium enterprises (MSME) loans with an external benchmark from October 1, banks are expected to be under pressure to deliver. Usha Thorat, former deputy governor of the RBI and chairperson of Financial Benchmark India (FBIL), tells Joydeep Ghosh that it’s absolutely essential for financial stability that bank spreads are not under threat. Edited excerpts:

How do you think the RBI decision will play out for banks?

The decision to direct banks to link retail and MSME loans with an external benchmark is primarily guided by