On Monday, State Bank of India (SBI) announced that it will adopt the repo rate as an external benchmark for its floating rate small loans — home, auto loans and advances to micro and small enterprises — starting October 1, as mandated by the Reserve Bank of India (RBI).
According to Financial Express, SBI also stated it was voluntarily extending the facility of external benchmark-linked rate based lending to medium enterprises in a bid to “boost lending” to the MSME sector as a whole. "SBI voluntarily extends the external benchmark based lending to medium enterprises also to boost lending to the MSME sector as a whole," it said in a statement.
SBI had introduced floating rate home loans effective July 1. A few modifications have been made in the scheme effective October 1 to comply with the latest regulatory guidelines, it added.
Repo rate refers to the rate at which commercial banks borrow money from the RBI in case of shortage of funds. To improve the transmission of interest rates, the RBI has asked banks to link their lending rates on floating rate loans to retail, personal and MSME borrowers to an external benchmark from October 1.
The regulator had said the transmission of policy rate changes to the lending rate of banks under the current marginal cost of lending rates (MCLR) framework has not been satisfactory. The government is looking to boost credit that will bring liquidity for businesses and create jobs at a time when the GDP growth has slowed to 5 per cent in the April to June quarter compared to 8 per cent in the same quarter of 2018-19. Much of the slowdown has been largely on account of weak household spending and muted corporate investment.
(Inputs from Agencies)
