Context:
The Reserve Bank of India (RBI) Annual Report for FY2023-24 reveals a major shift in the Indian lending landscape, with a growing proportion of loans now linked to external benchmarks. This transition enhances transparency and strengthens monetary policy transmission.
Key Data (as of December 2024)
- 61% of total loans in the banking system are linked to an External Benchmark Lending Rate (EBLR).
- Loans benchmarked to MCLR (Marginal Cost of Funds Based Lending Rate) have declined to 36%.
Institution-wise Distribution of Floating Rate Loans
- Public Sector Banks (PSBs):
- 44.6% of floating rate loans are linked to EBLR.
- A high share of MCLR and other legacy rate-linked loans persists, indicating slower transition.
- Private Sector Banks:
- 85.9% of floating rate loans are linked to EBLR, reflecting quicker adoption of the benchmarked system.
- Minimal reliance on MCLR and older benchmark systems.
What is EBLR?
The External Benchmark Lending Rate (EBLR) is a type of floating lending rate linked to an external, publicly available benchmark like the RBI Repo Rate, 3-month/6-month Treasury Bill Yield, or any other benchmark published by FBIL (Financial Benchmarks India Ltd).
Key Components of EBLR:
- Benchmark Rate –
- Set by an external institution like RBI or FBIL
- Spread/Margin –
- Fixed at loan origination; includes operational cost, credit risk premium, etc.
- Risk Premium –
- May vary depending on the borrower’s credit profile
Comparative Insights:
| Parameter | Public Sector Banks (PSBs) | Private Sector Banks |
|---|---|---|
| Share of EBLR-linked loans | 44.6% | 85.9% |
| Share of MCLR/legacy rate loans | Higher | Significantly lower |
Implications for Indian Banking:
- The EBLR regime improves transparency and facilitates faster monetary policy transmission.
- Private sector banks are leading the transition to modern lending practices.
- Public sector banks need to accelerate the migration from MCLR to EBLR for better alignment with RBI’s policy framework.
BS
