Recently, the Reserve Bank of India had asked all banks to link loans to external benchmark rate (repo rate or treasury bill). Now Moody’s Investor Service has said that the financial challenges of banks will increase with the order of RBI. According to Moody’s, this is not fair from the point of view of the country’s banks. This will affect their ability and flexibility in managing the risk associated with the interest rate.
It is worth noting that last week, the Reserve Bank had told the banks that the customers are not getting the benefit of the cut in repo rate as expected. Along with this, the RBI had essentially asked banks to link floating rate loans to micro, small and medium enterprises (MSMEs) with external benchmark besides all their personal and retail loans. Explain that the Reserve Bank has cut the repo rate by 1.10 percent this year.
You will get direct benefit of the implementation of the new RBI system. In fact, whenever the Reserve Bank will cut the repo rate, it will be mandatory for banks to cut the interest rate. The effect of this will be that the EMI rate of other loans, including your auto and home loan, will decrease. At the same time, after the new system is implemented, the system will be more transparent than before. With this, every borrower will know about the interest rate. They will also know what profit the banks are taking. Apart from this, customers will also be able to compare the loan rates of banks.