Page 40 - Banking Finance October 2024

ARTICLE

(Figure 3: Source FBIL) can be either any money market rate such as yield on
T-Bills or the policy repo rate. Currently, in 80% of EBLR
d) Deposit & Credit Portfolio: loans the benchmarking is done to policy repo rate. This
In October 2019, RBI introduced External Benchmark results in automatic change in lending rates for banks
Lending rates for SCBs which was a new floating rate whenever MPC tweaks repo rate.
benchmark. The purpose of the new benchmark was to
ensure quick and efficient transmission of monetary policy The total share of EBLR based loans has increased to
to financial markets. This benchmark was to be used by 56.20% in December 2023 from 9.1% in March 2020,
the SCBs in pricing of their MSME and new retail loans. while during the same period MCLR based loans have
In order to promote this new benchmark banks provided declined from 78.30% to 39.40%. The Banks have
their retail customers with an option to migrate their significantly improved transmission and transparency in
outstanding loans based on marginal cost-based lending setting of rates for its credit portfolio. This highlights that
rate (MCLR) to EBLR. RBI gave freedom to Banks to transmission has improved significantly, which improves
choose the underlying for arriving at their EBLR, which the transparency in rate setting by the banks. The share

36 | 2024 | OCTOBER | BANKING FINANCE