The country’s largest lender State Bank of India (SBI) said on Monday it has decided to adopt repo rate as the external benchmark for all floating rate loans for micro, small and medium enterprises (MSMEs), housing and retail loans (home, auto, etc.).
They will be effective from October 1 as per Reserve Bank of India’s (RBI’s) notification dated September 4.
“SBI voluntarily extends the external benchmark based lending to medium enterprises also to boost lending to the MSME sector as a whole,” it said in a statement.
SBI had introduced floating rate home loans effective July 1. A few modifications have been made in the scheme effective October 1 to comply with the latest regulatory guidelines, it added.
Repo rate refers to the rate at which commercial banks borrow money from the RBI in case of shortage of funds. To improve the transmission of interest rates, the RBI has asked banks to link their lending rates on floating rate loans to retail, personal and MSME borrowers to an external benchmark from October 1.
The regulator had said the transmission of policy rate changes to the lending rate of banks under the current marginal cost of lending rates (MCLR) framework has not been satisfactory.
The government is looking to boost credit that will bring liquidity for businesses and create jobs at a time when the GDP growth has slowed to 5 per cent in the April to June quarter compared to 8 per cent in the same quarter of 2018-19.
Much of the slowdown has been largely on account of weak household spending and muted corporate investment.