RBI yet to hear from any banks on fixed-cum-floating loans

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Updated: September 18, 2019 10:44:30 PM

Earlier this month, RBI had mandated banks to link all new floating rate personal or retail loans and floating rate loans to MSMEs to an external benchmark from October 1.

rbi, reserved bank of indiaThe monetary authority 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.

The Reserve Bank has not received any request from any banks seeking to introduce fixed-cum-floating rate loans, especially home loans, a source said.

State Bank chairman Rajnish Kumar had over the past weekend said the bank would seek clarification from the regulator on whether it could offer long-term home loans that would initially have fixed rates and then move onto a floating rate structure to balance the asset-liability mismatch.

His comment came after the RBI had earlier this month mandated all banks to link their personal or retail loans to floating rate linked to an external benchmark.

Kumar had said there was some ambiguity on fixed rate products after the RBI’s new mandate on linking retail loan to an external benchmark.

“The RBI has not got any formal request (to allow fixed plus floating loan rates for home loans),” a source said Wednesday.

He said the central bank has some reservation over such products which are also known as ‘teaser loans’ as they have potential to create risks in the system in future.

“Such loans can push risks to a future date and that is something RBI is concerned about,” the source explained.

Earlier this month, RBI had mandated banks to link all new floating rate personal or retail loans and floating rate loans to MSMEs to an external benchmark from October 1.

The central bank had asked banks to link these loans either to repo rate or to 3-month or 6-month Treasury bill yields or any other benchmark interest rate published by Financial Benchmarks India.

The monetary authority 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.

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