External benchmarks for loans may lead to face-off between banks, NBFCs

Banks are to link retail loans to external benchmarks; finance companies may be next

Is another whammy on the cards for non-banking finance companies (NBFCs)—this time on the issue of external benchmarks in the pricing of retail loans? It’s a matter which has come into the spotlight with the Reserve Bank of India (RBI) making it clear that NBFCs dependence on short-term liquidity will be a thing of the past even as banks have been asked to link their retail book pricing to the repo rate, the 91-day or the 182-day treasury bill yield; or any other market rate produced by the Financial Benchmarks India.

The chatter in the financial markets is that going