Bengaluru: The Reserve Bank of India on Wednesday asked banks to link all new floating-rate loans for housing, personal and micro, small and medium enterprises (MSMEs) to external benchmark based interest rate from 1 October, in a bid to allow faster transmission of its rate cuts to consumers.
It has been observed that due to various reasons, the transmission of policy rate changes to the lending rate of banks under the current marginal cost of funds based lending rate (MCLR) framework has not been satisfactory, the central bank said in a statement.
"The RBI therefore has today issued a circular making it mandatory for banks to link all new floating rate personal or retail loans and floating rate loans to MSMEs to an external benchmark effective October 1, 2019," it said. The interest rate under external benchmark shall be reset at least once in three months, it said.
Last month, the RBI lowered its benchmark interest rates for a fourth straight meeting with a slightly bigger than expected 35 basis points cut, underscoring its worries about India's near-five-year-low economic growth pace.
About dozen banks have already aligned their lending rate with the repo rate of the RBI.