The Reserve Bank of India’s (RBI) decision to allow banks to reduce the spread component on loans offered before three years will benefit existing customers and further aid monetary policy transmission, experts said.

In order to benefit existing borrowers, the RBI, on Monday, said, “…the other spread components may be reduced by banks for a loan category earlier than three years for customer retention, on justifiable grounds, in a non-discriminatory manner, and in terms of the bank’s policy”. The new norms will come into effect from October 1.

Spread refers to the additional percentage that lenders add to the benchmark interest rate such as external benchmark rate or marginal cost of funds based lending rate (MCLR) by banks when determining the final lending rate to a borrower. Banks typ

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