On Monday, the State Bank of India (SBI) said that it will use RBI's repo rate as the external benchmark for its floating rate MSME (Micro, Small and Medium Enterprises), housing and retail loans. In a press release, the public-sector lender said that the new change will come into effect from 1 October.
The decision is on the Reserve Bank of India's (RBI) latest mandate for all public sector banks to link the interest rates on their retail loans (housing, auto, etc) to an external benchmark starting next month. The external benchmarks include RBI's repo rate, Government of India 3-month treasury bill, Government of India 6-month treasury bill yield or any other benchmark market interest rate published by Financial Benchmarks India Private Ltd (FBIL).
RBI also said that banks are free to link other loan products to external benchmarks as well. SBI voluntarily chose to link MSME loans to the repo rate.
SBI was the first bank to float repo-linked loans on 1 July with its RLLR based home loan scheme. However, last week it informed of the withdrawal of the housing loan scheme and said that modifications were being made to the scheme that it shall inform customers accordingly over its website soon.