State Bank of India (SBI), country’s largest bank, has announced that it will link all its Micro and Small Enterprises (MSME), housing, and retail loans with the Reserve Bank of India’s repo rate. The move follows the SBI’s decision to withdraw its repo-linked home loan scheme that it had launched in July.
The SBI decided to go with the repo rate as its external benchmark after the RBI had mandated all banks to link their floating rate loans to an external benchmark.
The benchmark specified by RBI for linking loans are:
– RBI’s repo rate
– Government of India 3 month and 6 month Treasury Bill yield published by the Financial Benchmarks India Private Ltd (FBIL)
– Any other benchmark market interest rate published by the FBIL.
The central bank had further said that banks are free to choose any of the external benchmark linked loans to other types of borrowers too.
The move is going to benefit the new borrowers. The existing borrowers whose loans are linked to MCLR/base rate/BPLR will continue in the same way for their loan tenure.