The Reserve Bank of India (RBI) on Wednesday issued a circular making it mandatory for banks to link all new floating rate personal or retail loans and floating rate loans to micro, small and medium enterprises to an external benchmark.
This new norm will be effective from October 1.
The banks are free to choose one of the several benchmarks indicated in the circular.
According to circular, the banks can also choose their spread over the benchmark rate, subject to the condition that the credit risk premium may undergo change only when borrower's credit assessment undergoes a substantial change, as agreed upon in the loan contract.
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