What is EBLR Rate (External Benchmark Lending Rate)?

The Repo Rate is the overall rate at which the RBI gives money to other commercial banks or financial institutes during monetary emergencies. When a commercial bank goes through any financial crisis, it approaches RBI for loans. Commercial banks borrow money from RBI through a few methods. They either sell bonds or securities with a specified agreement to repurchase securities on the specified date at a different price point. The interest rate that the central bank charges on the borrowed amount is the repo rate.

On the other hand, the External Benchmark Lending Rate (EBLR) is a reference interest rate used by financial institutions to determine the interest rates on various loans offered by them to their customers. EBLR interest rate ensures better transmission of policy rate changes, which was difficult with the earlier benchmarks like MCLR or Base Rate

EBLR is a benchmark lending rate for floating-rate loans. It is the minimum interest rate below which commercial banks cannot lend. This rate is based on four components i.e. the marginal cost of funds, negative carry on account of cash reserve ratio, operating costs and tenure premium.

The formula to calculate the current EBLR rate is:

External Benchmark Lending Rate (EBLR) = Repo Rate + Spread.

The key benefits of the EBLR rate for the borrowers and the lending banks are as follows:

• Banks have the freedom to determine the spread over the EBLR current rate.
• Since EBLR is an external rate, any activity in policy rate cuts regarding lending rates will reach borrowers sooner.
• There is more transparency in the interest rate process based on the current EBLR rate and it is easier to understand for borrowers.
• Borrowers can analyse the rates of interest charged by various banks, which will inform them about the profit margin of every bank over the fixed interest rate so that they can easily compare various loan options.
• Unlike MCLR (internal system for each bank), RBI offers banks 4 external benchmarking mechanism options to choose from i.e. RBI repo rate, 91-day T-bill yield, 182-day T-bill yield and any other benchmark market rate as developed by the Financial Benchmarks India Pvt. Ltd.

The External Benchmark Lending Rate (EBLR) is a reference interest rate used by financial institutions to determine the interest rates on various loans offered by them to their customers.

The Repo Linked Benchmark Lending Rate (RBLR) is a reference rate for loans, which is benchmarked, to the Repo Rate published by the Reserve Bank of India from time to time on a predetermined date.

The Benchmark Prime Lending Rate (BPLR) was introduced by RBI in 2003 to determine home loan interest rates based on the average cost of funds. Due to a lack of transparency, the RBI had to replace it with a Base Rate in 2010.