EBLR Rate
EBLR stands for External Benchmark Lending Rate. It is the interest rate framework under which banks must link all new floating rate retail and MSME loans to an external benchmark instead of an internal benchmark like MCLR. The Reserve Bank of India mandated EBLR for new loans from October 2019 to improve the speed at which policy rate changes reach borrowers.
What Is EBLR?
Under EBLR, banks choose one of the following external benchmarks:
– RBI repo rate (most commonly used)
– 91-day Treasury Bill yield
– 182-day Treasury Bill yield
– Any other benchmark rate published by the Financial Benchmarks India Pvt Ltd (FBIL)
Most banks have adopted the repo rate as their external benchmark. The loan rate is then: Repo Rate + Spread (fixed for the loan tenure). The spread covers the bank’s operating costs and risk premium and remains constant throughout the loan term. Only the repo rate component changes when RBI revises its policy rate.
Why Was EBLR Introduced?
Under MCLR, banks had flexibility in how quickly they passed on rate cuts. Critics argued that banks raised rates faster than they reduced them. With EBLR:
– Rate transmission is near-immediate for new loans (within 3 months of RBI’s rate change)
– Borrowers can easily track changes since the repo rate is publicly announced
– Banks cannot delay transmission by adjusting internal calculations
EBLR vs MCLR
| Feature | MCLR | EBLR |
|———|——|——|
| Benchmark | Internal (bank’s cost of funds) | External (repo rate) |
| Transparency | Moderate | High |
| Rate transmission | Slower (reset at intervals) | Faster |
| Mandated for | Loans up to 2019 | New retail/MSME loans from Oct 2019 |
Reset Period Under EBLR
Under EBLR, reset happens at least once every three months. Most banks reset rates linked to the repo rate immediately upon any repo rate change, so the impact reaches borrowers quickly.
Practical Example
Suresh takes a home loan in 2023. The bank offers it at Repo Rate + 2.75%. When the loan is taken, the repo rate is 6.5%, so his interest rate is 9.25%. In February 2024, the RBI cuts the repo rate by 0.25% to 6.25%. Suresh’s loan rate falls to 9% within the next reset date (within 3 months). The spread of 2.75% remains unchanged for the tenure of the loan.
Key Takeaways
– EBLR links new floating rate retail and MSME loans to an external benchmark, usually the repo rate
– It was mandated from October 2019 for all new floating rate loans in these categories
– Rate changes from RBI policy decisions reach borrowers faster under EBLR than under MCLR
– The spread over the benchmark remains fixed; only the benchmark rate changes
– Existing MCLR-linked loans can be switched to EBLR by requesting a migration at the bank
