Benchmark Lending Rates

After the recent hike in interest rates by the Reserve Bank of India (RBI), several banks have raised their benchmark lending rates. These are basically reference rates (below which lenders cannot lend) based on which the lender assigns the interest rates on various loans. Benchmark rates could be either internal or external. External benchmark lending rate (EBLR) could be linked to benchmarks, such as the RBI’s repo rate or other benchmark rates published by the Financial Benchmarks India Private Limited (FBIL). In 2019, RBI mandated all banks to peg interest rates to external benchmarks. The internal benchmark lending rate (IBLR) is the one set internally by lenders, subject to certain conditions. For example, marginal cost of lending rate (MCLR) was also set by lenders under RBI guidelines, but is now only applicable to existing loans that are already linked to MCLR. Retail...