RBI likely to launch a new market benchmark soon

A panel suggests that all floating rate loans advanced from April could be referenced to external benchmarks.

With an aim to hasten monetary policy transmission, a Reserve Bank of India (RBI) committee headed by Dr Janak Raj, has recommended linking bank lending rates to one of three external benchmark rates. The idea is to also improve transparency in rate setting by lenders, Mint said in a report.

“Arbitrariness in calculating the base rate and MCLR and spreads charged over them has undermined the integrity of the interest rate setting process,” RBI said. “The base rate and MCLR regime is also not in sync with global practices on pricing of bank loans.”

The panel suggested that all floating rate loans advanced from April could be referenced to external benchmarks such as T-bill, certificate of deposit rate or the central bank's repo rate rather than leaving it to the discretion of each bank.
The panel has suggested a risk-free curve involving rates on treasury bills, or certificate of deposits rates or the central bank’s policy repo rate.

RBI’s final view on suggestions of the panel will be taken on the basis of public feedback received until 25 October.

Source: Mint


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