The Reserve Bank of India (RBI) on December 5 announced a change in the way banks and finance companies priced their floating rates for retail loans (home, cars, etc.) and small businesses. Beginning April 1, 2019, banks will have to link the interest rates on such loans to an external benchmark instead of using their own internal benchmarks. Every publication has cheered this without a hint of the enormous irony — that the regulator had allowed banks to fleece floating-rate borrowers for two decades with useless tweaks to enable it. So why this move now?
First, let me explain the issue.
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