RBI Annual Report 2024 Highlights Shift to EBLR in Indian Bank Loans

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:

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