Ease of credit access: Allahabad Bank launches retail, MSE loans linked with external benchmark rates

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Published: September 22, 2019 4:05:09 PM

Credit and Finance for MSMEs: Currently, Allahabad bank has identified RBI’s Repo Rate and 3 Month Mumbai Interbank Offer Rate (MIBOR) as the benchmark rates.

Allahabad Bank to offer repo linked retail, small biz loans from Oct 1Apart from external benchmark linked loans, Allahabad Bank said that it is also extending concession of 05 to 10 bps to its women beneficiaries.

Credit and Finance for MSMEs: After the RBI earlier this month made it mandatory for banks to link new floating-rate loans to retail and MSMEs to an external benchmark from October 1 onwards focusing on faster transmission of policy rate cuts to borrowers, public sector lender Allahabad Bank has launched retail and MSME loans linked with external benchmark rates published by Financial Benchmarks India Pvt. Ltd. The retail products on offer include loans with respect to housing, car, education, personal, consumer etc. while pertaining to MSME, it includes Loan for trading, manufacturing, MUDRA, commercial vehicle, rent discounting, property loans etc.

Currently, Allahabad bank has identified RBI’s Repo Rate and 3 Month Mumbai Interbank Offer Rate (MIBOR) as the benchmark rates, the bank said in a statement, adding that it is passing on the benefit of lower interest rate in the range of 05 bps to 150 bps to customers from the current interest rate under marginal cost of funds-based lending rate (MCLR).

Also read: IBC Amendment 2019: Why landmark legislation failed to rescue MSMEs from vicious cycle of indebtedness

Linking floating-rate loans to external benchmark rates likely boost the sagging consumption as it would make new retail and MSME loans cheaper since there are no real chances of the benchmark rates increasing in the near future, Financial Express had reported.

Apart from external benchmark linked loans, Allahabad Bank said that it is also extending concession of 05 to 10 bps to its women beneficiaries.  Moreover, it said that “an additional concession of 05 bps per annum with a maximum cap of 25 bps during the life cycle of the loan will be extended to borrowers who are regular in their repayment, year on year.” The products will be available from October 1 onwards. While the products are available to new customers, the bank’s existing customers will have the option of moving to the new products.  

Allahabad bank further announced that said that some liability products such as savings accounts (Rs 40 lacs & above), long tenure fixed deposit, bulk deposits and Flexi-fix deposits are now linked with external benchmark rate in order to manage the interest rate risk. The bank’s board had last week approved the merger proposal with Indian Bank that would turn it into India’s seventh-largest public sector lender. Finance Minister Nirmala Sitharaman had last month announced the consolidation of 10 state-run banks into four large-scale lenders. 

Allahabad Bank had reported Rs 128 crore in net profit for Q1 FY20 against Rs 1,944.37 crore in a net loss in the same period a year ago due to a decline of more than 50 per cent in provisioning for bad loans, according to a stock exchange filing.

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