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Now Union Bank of India links interest rate for MSME loans to RBI’s repo rate, effective from October 1

FE Online
union bank, banking sector, banking industry

Credit and Finance for MSMEs: PSU bank Union Bank of India has joined the growing list of lenders linking their new floating-rate MSME and retail loans to the RBI Repo Rate. The bank on Monday announced that all new floating rate loans to the two segments will be linked to the new external benchmark as directed by the RBI earlier this month to be effective from October 1, 2019. Union Bank of India has fixed the External Benchmark Lending Rate (EBLR) at 8.25 per cent. "Effective rates for various schemes shall be at EBLR+ Premium for the product," the bank said in a statement.

The RBI had earlier this month had asked banks to link new floating-rate loans to retail and MSMEs to an external benchmark from October 1 onwards to boost transmission of policy rate cuts to borrowers. The central bank in its September 4, 2019 circular had offered four benchmarks for banks to choose from to link such loans. These included the RBI's repo rate, Government of India 3-month treasury bill yield published by the Financial Benchmarks India Private Ltd (FBIL), Government of India 6-month treasury bill yield published by the FBIL or any other benchmark market interest rate published by the FBIL.

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The Union Bank said that With EBLR linked to the Repo Rate, any change in the latter by RBU would automatically be passed on to the customer. It added that the Marginal Cost of Funds Based Lending Rate (MCLR) is also reduced by 5 bps across all tenors from October 1, 2019, onwards.

The Union Bank had posted an increase in net profit by 73.25 per cent to Rs 224.43 crore for the June quarter this year as its overall provisioning costs went down by 33.63 per cent to Rs 1519.34 crore for Q1 FY20 from Rs 2,289.07 crore in the same quarter last year.

Recently banks including SBI, Allahabad Bank, Indian Overseas Bank, IDBI Bank etc., had also adopted repo rate as the external benchmark for new MSME and retail loans.