SBI is to link new floating rate home auto loans to RBI's repo rate

SBI is to link new floating rate home auto loans to RBI's repo rate

State Bank of India or SBI, the country’s largest lender decided to adopt Reserve Bank of India’s repo rate as the external benchmark for all floating rate loans for MSME, home and retail loans effective October 1, 2019. RBI earlier asked banks to link all new floating rate personal or retail loans and floating rate loans to Micro and Small Enterprises to external benchmarks from October 01, 2019.

The benchmarks include RBI's repo rate, Government of India 3-Months Treasury Bill yield published by the Financial Benchmarks India Private Ltd (FBIL), Government of India 6-Months Treasury Bill yield published by the FBI or any other benchmark market interest rate published by the FBIL.

The banks are free to offer such external benchmark linked loans to other types of borrowers as well.
It has voluntarily extended the external benchmark based lending to Medium Enterprises to boost lending to the MSME sector as a whole.

SBI Repo Rates:
  • SBI introduced repo-linked floating rate home loans from July 1, 2019.
  • The new RBI guidelines for new floating rate home and auto loans, the banks have to reset rates at least once every three months.
  • Banks have been given the freedom to decide the spread over the external benchmark. However, credit risk premium can change only when borrower’s credit assessment undergoes a substantial change, as agreed upon in the loan contract.
Key highlights:
  • Further, other components of spread including operating cost could be changed once every three years.
  • The existing loans and credit limits linked to the MCLR/Base Rate/BPLR shall continue till repayment or renewal, as the case may be.
  • The final rate charged to this category of borrowers, post switchover to external benchmark, shall be the same as the rate charged for a new loan of the same category, type, tenor and amount, at the time of origination of the loan.

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