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RBI orders to link all loans with Repo Rate from 1 October 2019

RBI orders to link all loans with Repo Rate from 1 October 2019

The Reserve Bank of India (RBI) has ordered banks to link all loan repo rates. RBI has ordered all banks to add home loans, auto loans, personal loans and all types of loans in MSME sector with repo rate from 01 October 2019.

The RBI has asked for changes in interest rates at least once in three months under external benchmarks like repo rate. In fact, for the last few months, RBI has been continuously asking all government and private banks to link bank loans with repo rates. But many banks were ignoring this thing of RBI. After which now the RBI has to order with the deadline.

RBI said

According to RBI, even after the 0.85 percent reduction in the repo rate, banks are not giving its benefit to the customers. RBI has cut the repo rate four times in the year 2019, which has been cut by 1.10 percent in total. The RBI has cut it by 0.85 percent since April. According to RBI, after cutting its repo rate by 0.85 percent, banks have been able to cut it by only 0.30 percent till August.

Customer’s benefits

  • Customers will get the direct benefit of implementing the system of adding repo rate to interest rate.
  • Because when the RBI will cut the repo rate from now onwards, it will become mandatory for banks to cut the interest rate.
  • The effect of this deduction will be that the EMI rate of any type of loan will decrease.
  • Once the system of linking the repo rate to the loan is implemented, the system will become more transparent than before.
  • With this, every borrower will know about the interest rate.
  • The RBI said in a statement on 04 September 2019 that it has been observed that the change in policy rates in the Marginal Cost Based Lending Rate (MCLR) regime of the existing fund to the lending rates of banks is not satisfactory for several reasons.
  • For this reason, RBI issued a circular on September 04, ordering all new floating rate personal or retail loans for banks and floating rate loans to MSMEs to be linked to the external standard from October 1, 2019.

Repo Rate       

  • Repo rate is the rate at which RBI lends to banks.
  • Banks also provide loans to customers on this basis.
  • Banks get relief due to low repo rate.
  • After this, banks can extend the loan to the customers at a low interest rate.

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