? Cool Title, but what’s the news?

The RBI, in its bi-monthly monetary policy review announced on 5 December, has directed banks to switch to external benchmarks to determine interest rates of new retail floating-rate loans. The change could be effective from April 1, 2019.

? Okay, but what does it mean?

The new regulation will force banks to adopt a uniform external benchmark, within a particular loan category. Banks would be compelled to keep the spread over the benchmark rate unchanged throughout the life of the loan, unless the borrower’s credit assessment undergoes a substantial change.

? Why should I care?

If you’ve taken any loan till date, you must have seen your bank raising lending rates as soon as RBI announces a policy rate hike but slacking off, when it comes to reducing them after rate cuts? With the new policy in place, new borrowers will not have to go through any changes in interest rates through the course of their loan cycle, as long as your credit score doesn’t go through major changes.

This will help in bringing transparency, standardisation and ease of understanding of loan products by borrowers.

Source: Economic Times



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