The State Bank of India (SBI) on Monday announced that it will adopt the repo rate as the benchmark for all floating rate loans to MSMEs and for home and retail loans from October 1.

This move comes after the RBI made it mandatory for all banks to link all new floating rate personal, retail or MSME loans to an external benchmark from October 1.

These benchmarks include the repo rate, 3/6-month treasury bill yields or any other benchmark published by Financial Benchmark India Pvt Ltd (FBIL). Subsequently, various lenders announced plans to come out with repo-linked loans.

“We have decided to adopt repo rate as the external benchmark for all floating rate loans for MSMEs and housing and retail loans, effective October 1, 2019,” the country’s largest bank said in a press statement.

The SBI added that it has also extended the external benchmark-based lending to small and medium enterprises, to boost the credit flow to the sector as a whole.

It had introduced floating rate home loans, effective July 1, 2019, but made some modifications to the scheme effective October 1, 2019, to comply with the latest regulatory guidelines, the bank said.

At present, banks follow the marginal cost of funds based lending rate (MCLR) to price various loans. In SBI, home loans up to Rs 30 lakh come at an interest rate of 8.25-8.55 per cent for salaried and non-salaried borrowers. The lender charges a spread of 10-40 basis points.

Allahabad Bank has also linked its retail and MSME loans to external benchmark rates published by FBIL. The lender added that retail products that will come under the new system include housing, car, education, personal, consumer loans and MSME loans

“With the introduction of these products, the bank is passing on the benefit of lower interest rate to the customers in the range of 5-150 basis from the existing rate of interest under MCLR,” it said.