PSBs, private banks divided over linking rates to external benchmark

While the RBI has not mandated banks to switch to external benchmarking, it had proposed that they link all new floating retail loans to an external benchmark from April 1

Even as public sector banks (PSBs) gear up to follow the State Bank of India’s (SBI's) move to link rates to an external benchmark, private banks seem wary of the transition.

“Linking to an external benchmark is good for banks and it is logical that other banks follow SBI. While the Reserve Bank of India (RBI) wants banks to link their asset side (loans) to the external benchmark, banks will need to link the liability (deposits) side to the benchmark as well in order to stabilise their interest margins,” said Karthik Srinivasan, group head, Icra.

While the RBI has not mandated banks