Retail loans to be linked to external benchmarks from April 1: Here's what it means for you

The Reserve Bank of India (RBI) in its bi-monthly monetary policy committee meeting on Wednesday said that starting April 1, the interest rate on all retail loans, which include home loans, auto loans and loans given to micro and small enterprises, will be linked to external benchmarks.

The external benchmarks suggested by the central bank are repo rate, the 91-day Treasury bill yield or the 182-day Treasury bill yield produced by the Financial Benchmarks India Pvt Ltd (FBIL). The central bank is also letting commercial banks to choose any other benchmark rate produced by the FBIL.

Since April 2016, the interest rates on all the loans have been linked to the Marginal Cost of Funds based Lending Rate (MCLR). Before 2016, they were linked to the base rates of the banks.