Letter to BS: Banks are at last moving towards floating rate of interest

The RBI's efforts should therefore move towards a market-determined benchmark cost for funds

This refers to “A first step to revival” (August 26). The Finance Minister's revival package also contains guidance to banks to link lending rates to repo rate, a proposal being finalised by the Reserve Bank of India (RBI). Good that banks are at last moving towards the floating rate of interest. However linking with repo rate does not serve any purpose. It is a policy rate and not a market-determined rate. And it is relevant only for short-term lending, say, not beyond three months. There is no way we can swap it into a fixed rate. A floating rate must