InvestorQ : What benchmarks will the RBI link interest rates to?
Nishita Gala made post

What benchmarks will the RBI link interest rates to?

Sadaf Khan answered.
3 years ago

The Reserve Bank of India had, in its December bi-monthly monetary policy in 2018, announced its decision to link all the floating rate personal or retail loans (housing, auto etc.) and micro and small enterprises to any of the four external benchmarks.

The four external benchmarks that were proposed in its earlier statement were:

1. Reserve Bank of India policy repo rate;

2. Government of India 91 days Treasury Bill yield produced by the Financial Benchmarks India Private Ltd (FBIL);

3. Government of India 182 days Treasury Bill yield produced by the FBIL; or

4. Any other benchmark market interest rate produced by the FBIL.

The move to link interest rates on retail and personal loans was supposed to come into effect from April 1, 2019. However, in its monetary policy today, the RBI deferred the decision.

As per the policy statement, RBI said, "Taking into account the feedback received during discussions held with stakeholders on issues such as (i) management of interest rate risk by banks from fixed interest rate linked liabilities against floating interest rate linked assets and the related difficulties, and (ii) the lead time required for IT system upgradation, it has been decided to hold further consultations with stakeholders and work out an effective mechanism for transmission of rates."