MUMBAI: The Reserve Bank of India (RBI) is unlikely to shift its stance mandating banks to link their floating rate retail and MSME loans to an external benchmark from October 1, sources in the know of things indicated. It is also learnt that the RBI is in the process of studying the non-banking and housing finance companies’ loan rates to look at the feasibility of moving them to a similar regime in future.
Doubts had risen in the market over the last couple of days on the rates linked to external benchmark after State Bank of India — the country’s largest lender and the first mover as far as the new system goes — put on hold home loans linked to Repo. “RBI had deliberated a lot, and decided this is the time to do it,” sources said. “There is no time like a right time; banks can start with retail loans linked to external benchmark on the asset side and savings banks floating rate on the liability side.”
The SBI is said to be in the process of reworking rates for the external benchmark-linked home loans to reintroduce them. “If the reworked offering of SBI is not linked to Repo (which is relatively more volatile than other benchmarks), this would indeed come as a breather for large HFCs, which are already forced to rethink their business models under the new guidelines applicable to banks from October 1, 2019,” ICICI Securities had said.
The external benchmarks that banks can follow are RBI’s Repo rate, Centre’s three-month Treasury Bill yield, six-month Treasury Bill yield or any other benchmark interest rate published by Financial Benchmarks India Private Ltd.
“Of course, RBI will move towards getting NBFC/HFC loans linked to external benchmark, and even otherwise, they will have to move because of the competition,” the former banker said, though right now there is no such mandate. NBFC and HFC loan rates are not governed by RBI guidelines or MCLR structure now, and RBI needs to first get them into a structure before moving to an external benchmark, sources said.