Which of the following is are correct with reference to the External Benchmarking of Lending rate 1 ...........

Indian Economy (Easy) Money and banking

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Which of the following is/are correct with reference to the External Benchmarking of Lending rate?

1. It will lead to transparency in pricing of loans.

2. It will lead to better transmission of RBI rate cuts.

3. Repo rate maintained by the RBI will be the only external benchmark.

Select the correct answer using the code given below.

1 only

1 and 2 only

2 and 3 only

1 and 3 only

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Explanation:

The RBI proposed to the use of external benchmark rates such as treasury bill rate, certificate of deposit rate and repo rate with an objective to make transmission faster. For external benchmark, it is not possible for banks to only link the asset side of the balance sheet creating asset liability mismatch. So if your deposit and loan are linked to external benchmark rate, any movement in rates will impact you.