**Summary:**
This circular, RBI/2019-20/167 DOR.DIR.BC.No.39/13.03.00/2019-20 dated February 26, 2020, issued by the Reserve Bank of India (RBI), extends the external benchmark-based lending requirements to Medium Enterprises. Building upon circular DBR.DIR.BC.No.14/13.03.00/2019-20 dated September 04, 2019, which mandated that all new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans to Micro and Small Enterprises (MSEs) be linked to external benchmarks effective October 01, 2019, this new directive requires that all new floating rate loans to Medium Enterprises extended by banks from April 01, 2020, must also be linked to external benchmarks. The objective is to further strengthen monetary policy transmission. All other instructions from the September 04, 2019 circular remain unchanged. This modifies Master Direction Reserve Bank of India Interest Rate on Advances Directions, 2016 dated March 03, 2016, which is available on the RBI's website. Contact person for inquiries is Dr. S. K. Kar, Chief General Manager. The policy applies to All Scheduled Commercial Banks excluding RRBs, All Small Finance Banks and All Local Area Banks.
Key Entities Referenced
Reserve Bank of India (RBI): The central bank of India, which issued the circular.
All Scheduled Commercial Banks: A category of banks regulated by the RBI.
Regional Rural Banks (RRBs): A category of banks in India, specifically excluded from this circular.
All Small Finance Banks: A category of banks regulated by the RBI.
All Local Area Banks: A category of banks regulated by the RBI.
Micro and Small Enterprises (MSEs): A sector of businesses that was previously included in the external benchmark lending system.
Medium Enterprises: A sector of businesses to which the external benchmark lending system is being extended.
Master Direction Reserve Bank of India Interest Rate on Advances Directions, 2016: A set of guidelines issued by the RBI regarding interest rates on advances.
RBI/2019-20/167
DOR.DIR.BC.No.39/13.03.00/2019-20 February 26, 2020
All Scheduled Commercial Banks (excluding RRBs)
All Small Finance Banks
All Local Area Banks
Madam / Dear Sir,
External Benchmark Based Lending – Medium Enterprises
Please refer to the circular DBR.DIR.BC.No.14/13.03.00/2019-20 dated September
04, 2019, in terms of which all new floating rate personal or retail loans (housing, auto,
etc.) and floating rate loans to Micro and Small Enterprises (MSEs) extended by banks
with effect from October 01, 2019 were linked to external benchmarks.
2. Subsequent to the introduction of an external benchmark system, the monetary
policy transmission has improved in respect of the sectors where new floating rate
loans have been linked to the external benchmarks.
3. With a view to further strengthening monetary policy transmission, it has now been
decided that all new floating rate loans to the Medium Enterprises extended by banks
from April 01, 2020 shall be linked to the external benchmarks as indicated in the
aforesaid circular. All the other instructions as contained in the aforesaid circular
remain unchanged.
4. Accordingly, Master Direction - Reserve Bank of India (Interest Rate on Advances)
Directions, 2016 dated March 03, 2016 has been modified and is available on RBI’s
website.
Yours faithfully,
(Dr. S. K. Kar)
Chief General Manager