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Loan Rules Tighten: Faster Rate Hikes Ahead
13 Aug
Summary
- New rules aim to accelerate loan interest rate transmission.
- MSME loans will be linked to repo rate for faster changes.
- Lender flexibility is reduced with a three-year spread freeze.
New regulations are being implemented to accelerate the transmission of loan interest rates. These rules focus on encouraging faster rate adjustments by reducing reset periods and standardizing procedural aspects.
A significant change requires floating-rate loans to MSMEs to be linked to an external benchmark, such as the repo rate. This move is intended to ensure that changes in benchmark rates are passed on more quickly to borrowers.
Furthermore, the regulations propose a three-month moving average for the marginal cost of funds and mandate benchmark resets within a three-month window. These measures are expected to enhance the speed at which loan rates adjust.
While these changes aim to improve rate transmission, they also introduce constraints for lenders. A key requirement is to keep spreads unchanged for three years, which limits lenders' flexibility in managing their loan portfolios and responses to market conditions.
