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EBLR: the external benchmark lending rate explained
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The external benchmark lending rate (EBLR) is the rate on a loan that is directly tied to an outside benchmark, so that a policy change flows to borrowers quickly. The RBI made it compulsory from 1 October 2019 for new floating-rate personal and retail loans (housing, auto, personal) and for floating-rate loans to micro and small enterprises. It was later extended to medium enterprises.
Which benchmarks banks may use
A bank chooses one of these and applies it uniformly across the product:
- the RBI's policy repo rate
- the 91-day treasury bill yield
- the 182-day treasury bill yield
- any other benchmark published by the Financial Benchmarks India Pvt. Ltd. (FBIL)
Most banks choose the repo rate, and a loan priced this way is often called a repo-linked lending rate (RLLR).
Spread and reset
Loan rate = benchmark + spread
The spread includes the bank's operating cost and margin and the borrower's credit risk premium. Once fixed, the spread cannot be raised without a genuine change in the borrower's credit assessment. The interest rate must be reset at least once every three months, so a cut in the benchmark lowers the borrower's rate quickly.
Take a hypothetical repo rate of 6.00% and a spread of 2.50%. The loan rate is 8.50%. If repo falls by 0.25 percentage points, the loan rate falls to 8.25% at the next reset.
EBLR vs MCLR
An MCLR loan is priced from the bank's own cost build-up and resets as rarely as once a year. EBLR is outside the bank's control and resets faster, which is why the RBI moved new retail loans to it. The older casa ratio and cost-of-funds story matters more for MCLR than for EBLR.
How bank exams ask about it
Common stems: "loans have been linked to external benchmarks from", "which of these is not an EBLR benchmark", and "EBLR reset period". Another frequent comparison asks which of MCLR or EBLR gives faster transmission. See where the rate topics fit in banking awareness.
Where to check
Your bank's published EBLR or RLLR and the RBI circular on external benchmarks, available at rbi.org.in, set out the current rules.
Frequently asked questions
Does EBLR apply to home loans?
Yes. New floating-rate home loans have been linked to an external benchmark since October 2019, and banks pass on repo changes at their reset dates.
Does a bank have to lower my rate when repo falls?
For an EBLR loan, the benchmark part of your rate falls automatically at the reset. The spread stays the same unless your credit profile changes.
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- MCLRMCLR is the internal benchmark that sets the minimum lending rate of a bank, introduced in April 2016. Components, reset, spread and difference from EBLR.
- Repo rateRepo rate is the rate at which the RBI lends short-term money to banks against government securities. How it works, what a change does and how exams ask it.
- Treasury billsTreasury bills are short-term government securities issued at a discount and repaid at face value. Tenors, yield worked out, CMBs and exam facts.
- Standing deposit facilityThe standing deposit facility lets banks park surplus funds with the RBI without collateral and sets the floor of the rate corridor. Meaning and exam facts.
- CASA ratioCASA ratio is the share of current and savings account deposits in a bank's total deposits. Meaning, formula, example and why a higher CASA lowers funding cost.
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