RBI Proposes New Interest-Rate to Tighten Floating-Rate Loan

|

RBI Proposes New Interest-Rate to Tighten Floating-Rate Loan

Economy
RBI Proposes New Interest-Rate to Tighten Floating-Rate Loan

The Reserve Bank of India (RBI) proposes a new loan interest-rate framework with tighter rules for floating-rate loans. The news is relevant because it concerns how floating-rate loan interest rates are benchmark-linked and transmitted to borrowers.

Floating-Rate Loans and Benchmarking:

Dimension Key Details
Definition A floating-rate loan is a loan in which the interest rate changes periodically in line with an underlying benchmark.
Benchmark Linkage A floating-rate loan is linked to an underlying benchmark such as the RBI repo rate, Treasury Bill yields, or other approved external benchmarks.
Impact on Borrower A rise or fall in interest rates can change the EMI and/or loan tenure.
Monetary Policy Transmission External benchmarking enables faster transmission of changes in policy rates to borrowers.
Did you find this informative?

Attempt Possible Qs

Q 1 / 2
Consider the following statements about external benchmarking and monetary policy transmission:
1. External benchmarking enables faster transmission of changes in policy rates to borrowers.
2. External benchmarking prevents any change in the borrower’s EMI during the loan tenure.
Which of the statements given above are correct?