September 4, 2019 / 2:39 PM / 14 days ago

RBI asks lenders to link some loans to external benchmark

A Reserve Bank of India (RBI) logo is seen at the gate of its office in New Delhi, India, November 9, 2018. REUTERS/Altaf Hussain

BENGALURU (Reuters) - India’s central bank on Wednesday mandated banks to link certain loans to the external benchmark based interest rate from Oct. 1, in a bid to allow faster transmission of its rate cuts to consumers.

The Reserve Bank of India (RBI) said banks were not satisfactorily transferring the cuts in policy rates. The RBI said lenders would now have to link all new floating rate personal or retail loans and floating rate loans to micro, small and medium enterprises (MSMEs) to an external benchmark.

Last month, the RBI lowered its benchmark interest rates for a fourth straight meeting with a slightly bigger than expected 35 basis points cut, underscoring its worries about India’s near-five-year-low economic growth pace.

Reporting by Derek Francis in Bengaluru, editing by Alasdair Pal

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