Explained: External Benchmarking

The Reserve Bank of India (RBI) has proposed a major change in the way banks price their loans. Banks will now have to link the interest rates charged by them on different categories of loans to the external benchmarks instead of the used internal benchmarks, which is the norm now.
Under the new system which will come into effect from April 1, 2019, banks will have to link their lending rates with an external benchmark instead of MCLR. The RBI has given these options to banks: RBI repo rate, the 91-day T-bill yield; the 182-day T-bill yield; or any other benchmark market interest rate produced by the Financial Benchmarks India Pvt. Ltd.
One of these benchmarks will be used to decide the lending rate in addition to the spread, Banks will be free to decide their spread value but it will have to be fixed for the tenure of the loan. However, it can change if the credit score of the borrower changes. The interest rates under the new system will change every month.
#RBI
#ExternalBenchmarking
#InterestRates

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Under the new system which will come into effect from April 1, 2019, banks will have to link their lending rates with an external benchmark instead of MCLR. The RBI has given these options to banks: RBI repo rate, the 91-day T-bill yield; the 182-day T-bill yield; or any other benchmark market interest rate produced by the Financial Benchmarks India Pvt. Ltd.
One of these benchmarks will be used to decide the lending rate in addition to the spread, Banks will be free to decide their spread value but it will have to be fixed for the tenure of the loan. However, it can change if the credit score of the borrower changes. The interest rates under the new system will change every month.

[@sowmithrivinay749]

Every month or every two months? I think it will change whenever repo changes. So is it not 2 months?

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Thank you sir.

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Personal category in housing loan is there,
Is it correct and housing loan interest is very low u say very high is it correct

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[@shubhamsharma7100]

Public k Liye interest rate increase Ni ho jaega sir. Please explain

[@anthonynirmal7058]

When banks maintain SLR ? Do banks earn only on their investments in liquid assets or is there a interest given by RBI to bank for maintaining SLR?

[@sanjaypasupuleti2832]

Mostly SLR is maintained in g secs which provides interest

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[@jishnunambiar1025]

Benchmark ratios of indian banking industry
Could anyone help me on this topic

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so much technical about BRR is seriously not required. might be necessary for banking exams!

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[@shahidbashir5968]

Why profit margin is included in base rate and spread

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Where can I get PDF of explained series

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