RBI: Bank lending rate will be market benchmark

In a bid to set the speedup monetary policy transmission and improve transparency in rate setting by lenders, RBI has set up a committe. The committee recommended linking bank lending rates to a market benchmark.

The committee headed by Janak Raj, principal adviser, monetary policy department, recommended that all floating rate loans advanced from April could be referenced to one of three external benchmarks. The panel has suggested a risk-free curve involving rates on treasury bills, or certificate of deposits rates or the central bank’s policy repo rate.

But the final call will be after public feedback received until 25 October. The panel even suggested that lending rates should be reset once every quarter from the current practise of once a year.