Loans for medium enterprises must be linked to external benchmarks: RBI

All new floating rate loans given to medium enterprises will be linked with external benchmarks from April 1, according to the Reserve Bank of India.

With respect to micro and small enterprises, floating rate loans are already linked with external benchmarks.

In a circular issued on Wednesday, RBI said it has now been decided that all new floating rate loans to the medium enterprises extended by banks from April 1, 2020, "shall be linked to the external benchmarks".

The move is aimed at further strengthening monetary policy transmission so that benefits of reduction in key lending rate (repo) can be passed on to medium enterprises also, the apex bank said.

Floating rate personal and retail loans have already been linked to external benchmarks. RBI repo rate, treasury bill yields, and other market interest rate published by FBIL (Financial Benchmark India Private Ltd) are among the benchmarks.

According to the RBI, subsequent to the introduction of an external benchmark system, the monetary policy transmission has improved in respect of the sectors where new floating rate loans have been linked to external benchmarks.

Since February 2019, the RBI has reduced the repo rate or short term lending rate by 135 basis points.