State Bank of India(SBI), has decided to adopt RBI’s repo rate as the external benchmark for all floating rate loans for MSME, home and retail loan which effective from 1st October 2019. Earlier, RBI had asked banks to link all new floating rate personal or retail loans (home, auto etc.) and floating rate loans to Micro and Small Enterprises to external benchmarks from October 01, 2019.
On 1st July 2019, SBI has introduced repo linked floating rate home loan. SBI said a few modifications have been made in the scheme effective 1st October 2019 to comply with the latest regulatory guidelines. As per the new RBI guideline, for new floating rate for home and auto loans, the banks have to reset rates at least once in three months, depending on the change of the external benchmark.
Banks have been given the freedom to decide the spread over the external benchmark. However, credit risk premium can change only when borrower’s credit assessment undergoes a substantial change, as agreed upon in the loan contract.
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