On September 4, the RBI had mandated all commercial banks to link all their new floating rate personal or retail loans and floating rate loans to MSMEs to an external benchmark from October 1.
After mandating banks to link their new retail loans to an external benchmark, the Reserve Bank is now looking at structuring the interest rate regime for housing finance companies and shadow bankers, which together control over a fifth of the credit market, for better transmission, according to a source. Unlike banks, HFCs and NBFCs do not have any ‘anchor rate’ or a uniform interest rate-determining structure, the source added noting that at present there is no mandate by the RBI for these players to have such rate.
He said the issue of linking of HFCs’ and NBFCs’ interest rate to an external benchmark was discussed when the central bank was looking at external benchmarks for banks.
“We need to graduate NBFCs and HFCs and are examining the issue of transparency in their lending rates and will have to take it forward. We are studying the issue of how interest rates are being determined by them and is there some order or structure that needs to be brought in,” the source said. He said HFCs and NBFCs do not operate in the same market as banks do and this aspect needs to be taken into consideration while considering having any anchor rate for these entities. It can be noted that while NBFCs have been under RBI regulation, till the FY20 budget, HFCs were being regulated by the National Housing Bank.
On September 4, the RBI had mandated all commercial banks to link all their new floating rate personal or retail loans and floating rate loans to MSMEs to an external benchmark from October 1. The regulator had asked banks to link these loans either to the repo rate or to 3-months or 6-months Treasury Bill yields or any other benchmark interest rate published by the Financial Benchmarks India. It said banks can offer such external benchmark linked loans to other types of borrowers as well and are to free to decide the spread over the external benchmark.