The Reserve Bank of India (RBI) has notified banks to link all new medium enterprise loans to the external benchmark. “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,” RBI said.
The regulator had announced linkage of external bench-marking to medium enterprise loans in the last credit policy held on February 6. This announcement is an extension to earlier direction from RBI to link new floating rates to retail, micro and small enterprises (MSEs) to external benchmark, effective October 1, 2019.
The government and regulator had announced several measures in the recent past to give boost to micro, small and medium enterprises (MSME) sector. RBI said on February 10 that banks need not maintain the cash reserve ratio (CRR) on new loans given between January 31 and July 30 for autos, homes and MSMEs for a period of five years.
RBI also sought to free up capital for lenders by extending the forbearance on asset classification on their MSME portfolios till December 2020.
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