Explanation:

Supplementary notes: External Benchmark Rates  The Reserve Bank of India has made it mandatory for all banks to link all new floating rate loans (i.e. personal/ retail loans, loans to MSMEs) to an external benchmark with effect from 1st October 2019. The move is aimed at faster transmission of monetary policy rates.

Banks can choose from one of the four external benchmarks — repo rate, threemonth treasury bill yield, six-month treasury bill yield or any other benchmark interest rate published by Financial Benchmarks India Private Ltd.  At present, interest rates on loans are linked to a bank’s marginal cost of fund-based interest rate, known as the Marginal Cost of Lending Rate (MCLR).

The transmission of policy rate changes to the lending rate of banks under the current MCLR framework has not been satisfactory.

The external benchmark was fi rst proposed by the former governor Urjit Patel in 2018. The norms for external benchmark linking of interest rates was scheduled to be operational from April 1, but owing to protest by the banks, the same was deferred.

Financial Benchmarks India Private Ltd

It was incorporated on 9th December 2014 under the Companies Act 2013.

It was recognised by the Reserve bank of India as an independent Benchmark administrator on 2nd July 2015.

The main objective of the company is to act as the administrators of the Indian interest rate and foreign exchange benchmarks and to introduce and implement policies and procedures to handle the benchmarks.

It is located in Mumbai.