EXTERNAL FACTORS
After getting delayed by six months from the original implementation date of April 1, external benchmark-linked floating rate loans became a reality on October 1. All banks have now started offering retails borrowers floating rate loans linked to external benchmarks. The Reserve Bank of India (RBI) had been pursuing this for long to improve the way banks change interest rates for retail loans.
“There are multiple benefits for borrowers of loans linked to external benchmarks. For starters, it drives transparency for all borrowers (new or old), and builds standardisation,” says Shantanu Sengupta, Managing Director and Head-Consumer Banking Group, DBS Bank India. “Earlier, only new borrowers got the benefit of better rates in a declining interest rate scenario while old loans used to run at higher rates. The new regime of external benchmark-linked loans with a fixed spread ensures better transmission across borrowers with similar risk profiles,” he adds.
How do these loans work? How will they impact your loans? Do you stand to gain from this change or not?
