The Reserve Bank of India (RBI) directed banks to link all the new floating-rate loan to medium enterprises with external benchmark. It will be effective from 1 April 2020. The floating rate loans of the micro and small enterprises are already linked with external benchmarks. Aim: The move by RBI is aimed to further strengthen the monetary policy transmission. The benefits of a reduction in key lending rates can be passed on to medium enterprises. Highlights: The external benchmarks will include RBI repo rate, Treasury bill yields, and the market interest rate published by the Financial Benchmark India Private Ltd (FBIL). The floating rate loans to micro and small enterprises, personal and retail loans have already been linked to external benchmarks. RBI states that the monetary policy transmission has improved in respect of the sectors where new floating rate loans have been linked to external benchmarks.
