The benchmark problem

RBI's move can have unintended consequences

The Reserve Bank of India (RBI) on Wednesday made it mandatory for all banks to link new floating-rate loans — to retail customers and micro, small and medium enterprises (MSMEs) — to an external benchmark from October 1. The external benchmark could be the policy repo rate, yields on three- and six-month treasury bills, as published by the Financial Benchmarks India Private Ltd (FBIL), or any other benchmark rate published by FBIL. Borrowers with a floating rate loan who are eligible to prepay without pre-payment charges can also switch to the external benchmark. Evidently, the move is aimed at ensuring