Indian Overseas Bank decides to link retail and MSME loans to repo rate
All the new loans under the retail segment and micro and small enterprises categories will be offered with Repo Linked Lending Rate (RLLR) only.
RBI vide its notification dated 04.09.2019 advised to link all new floating rate for personal or retail loans (housing, auto, etc.,) and Micro and Small Enterprises extended by banks to one of the external benchmarks viz., Repo Rate, 3M or 6M T-bills yields or any other benchmark published by Financial Benchmarks Private Limited.
Out of the above three benchmarks, IOB now decided to link interest rates with Repo Rate for the above segment loans and the details of rates will be published w.e.f. 01.10.2019. Henceforth, all the new loans under these categories will be offered with RLLR only.
According to the circular issued by the central bank dated September 4, 2019, banks can benchmark the interest charged on the loans that they offer to any one of the following: (a) RBI's repo rate, (b) Government of India three-months Treasury Bill yield published by the Financial Benchmarks India Private Ltd. (FBIL), (c) Government of India six-months Treasury Bill yield published by the FBIL and (d) Any other benchmark market interest rate published by the FBIL.
RBI's circular says that the interest rate linked to an external benchmark has to be reset at least once in three months. For the borrowers, this would mean that banks would now have to reprice the interest rates on loans every three months to pass on any changes in the external benchmark rate.
Most PSU banks have already started offering home loans, vehicle loans with interest rate linked to RBI's repo rate. Post RBI's new directive, all the private as well as public sector banks will now have to link interest rates charged on new loans to any one of the external benchmarks mentioned above.