EBLR Explained: SBI Cuts External Benchmark Lending Rate
Why in the news
State Bank of India lowered its External Benchmark Lending Rate and home loan rate by 50 basis points, passing on RBI’s half-percent repo cut. The revised EBLR is 8.15%, down from 8.65%.
About EBLR
- A lending rate tied to an external reference rather than a bank’s internal costs.
- Allowed benchmarks: RBI repo rate, 3-month or 6-month Treasury Bill yield, or another benchmark published by FBIL.
- Aim: better transmission of monetary policy to borrowers.
Background
- Earlier, banks used internal benchmarks, IBLR and MCLR.
- Banks often did not pass on policy rate cuts, citing spreads, operating costs and NPAs.
- This led RBI to form an Internal Study Group (ISG); EBLR followed from 1 October 2019.
Key RBI rules
| Rule | Requirement |
|---|---|
| Loans covered | All floating-rate retail and MSME loans |
| Benchmark | One benchmark per loan category |
| Reset | At least every 3 months |
| Spread | Permitted; any rise only if borrower’s creditworthiness changes materially |
Why the shift
- Weak transmission of rate cuts.
- Opaque internal benchmark setting.
- Limited effect of monetary policy on actual lending rates.
- Spreads varied and were subjective across banks.
Impact of a cut
- Borrowers with EBLR-linked home, personal and small business loans generally gain lower interest rates.
- Transmission is faster and more transparent than under MCLR.
Exam angle
- EBLR start date: 1 October 2019.
- Benchmark publisher: FBIL.
- Minimum reset frequency: 3 months.