Repo-link effect: Banks likely to raise risk spread, say analysts

Private sector bankers have earlier warned that repo is inherently a volatile rate, but linking the lending rates to the short-term treasury bills would be even more volatile

Analysts are not enthused about banks migrating to an external benchmark-linked lending system. They say banks will have to hike their fees and possibly tweak spreads to maintain their profitability.

While the new system will be readily available for fresh retail loans, banks will not want to shift their legacy loans to the new system. 

Even as a customer insists, the benefit could be marginal, if at all, given that banks won’t change their elevated cost structure for three years as allowed by the Reserve Bank of India (RBI), but will instead reset interest rates every three months as mandated. This poses