External Benchmark system: Which borrowers eligible?

Question 1

What is the External Benchmark system?

Answer 1

A loan interest rate system where the rates are linked to an external factor (like the repo rate set by the Reserve Bank of India). This ensures faster changes to lending rates in response to shifts in the overall economy.

Question 2

Which types of borrowers are eligible for loans under the External Benchmark system?

Answer 2

Individuals taking personal loans
Borrowers taking retail loans (home, vehicle, electronics, etc.)
Micro and small enterprises
Medium enterprises (eligible after April 1, 2020)

Question 3

Can existing borrowers switch to the External Benchmark system?

Answer 3

Yes, existing borrowers with loans in the eligible categories can switch to the External Benchmark system by filling out an application form with their bank.

Question 4

What are the key benefits of the External Benchmark system for borrowers?

Answer 4

Better/faster transmission of Monetary Policy: Interest rates change more quickly in line with central bank decisions.
Transparency: Borrowers get a clearer picture of how their interest rates are calculated.
Accountability: Banks are held more accountable for how they set rates.