Concept and Tenets of EBLR

Concept and Tenets of EBLR

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External Benchmarks Lending Rate is spelled EBLR. The RBI's fifth bimonthly Monetary Policy Statement (2018–19) states that EBLR will be connected to floating interest rates for retail loans and micro and small businesses. In addition, the RBI announced that additional meetings with stakeholders would be held to develop an efficient method for transmitting rates. Banking's EBLR is very important because banks can't give loans to customers at rates lower than the EBLR rate. The Home Loan interest rate and other loan interest rates are determined by banks using EBLR. As a result, it is essential to comprehend the significance of EBLR in banking and its meaning.

The interest that banks charge on loans is determined by a variety of base rates. The Reserve Bank of India (RBI), India's central bank, sets these base rates. The following rates were used to determine loans in India until 2019.

• Internal Benchmark Lending Rate (IBLR)

• Marginal Cost of Funds Based Lending Rate (MCLR)

The RBI found that the internal benchmark rates were insufficient to ensure that monetary policy was effectively transmitted. The RBI has decided to use an external benchmark on the advice of an Internal Study Group (ISG). The EBLR rate is the new name for this external benchmark rate.

Instructions from the RBI on How to Use EBLR in Banking - Personal loans, other retail loans, and loans to small businesses all have EBLR-based floating interest rates. The EBLR-linked loans can be extended to other types of loans by banks as well. For a particular category of loans, banks must adhere to the same external benchmark. This has been done so that borrowers can get loan products that are clear, consistent, and simple to understand. For each loan category, the bank can use up to one benchmark. The EBLR structure of interest rates is not new. The EBLR must be linked to all banks' Home Loan floating interest rates.