External Benchmarks Lending Rate – RBI

22 July 2021 Current Affairs:In RBI’s recent report on “Monetary Transmission in India”, the share of outstanding loans related to external benchmark lending rates (EBLR-similar to repo rate) increased from as low as 2.4% in September 2019 to 28.5% in March 2021.

About External Benchmark Lending Rate (EBLR):
♦ RBI requires banks to adopt a unified external benchmark within the loan category, effective from October 1, 2019
There are four external benchmarking mechanisms:
♦ The repo rate set by the RBI
♦ The yield on the 91-day T-bill
♦ The yield on the 182-day T-bill
♦ Any other benchmark market interest rate established by Financial Benchmarks India Pvt. 
♦ Banks are free to set their own spreads over the external benchmark. The interest rate, however, must be reset in accordance with the external benchmark at least once every three months.
Importance: faster monetary transmission + interest rate transparency + standardisation of interest rate fixing

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