What happened: RBI tightened disclosure for bulk-deposit-linked loan pricing
The Reserve Bank of India (RBI) introduced new rules aimed at improving transparency in the way banks set and communicate loan pricing when loan rates are linked to bulk deposits. RBI’s focus is on making the benchmark construction and disclosure requirements clearer, so borrowers and market participants can understand how deposit-linked pricing benchmarks are decided.
Background and earlier position: why bulk-deposit-linked pricing needs clarity
Bulk deposits can influence a bank’s cost of funds. When a loan is priced using a benchmark linked to those deposits, the benchmark-setting process matters because it affects the interest cost faced by borrowers. Without clear disclosure, banks may appear opaque about how the benchmark is formed and how it changes over time.
What changed now: LCR-linked factors allowed for lending rates, with clearer disclosures
RBI introduced rules that allow lending rates to be tied to Liquidity Coverage Ratio (LCR)-linked factors. Alongside this permission, RBI also requires clearer disclosure of the way deposit-linked pricing benchmarks are set. In practical terms, banks must disclose a clearer explanation of benchmark construction for deposit-linked pricing so that the link between deposit conditions and loan rates is more understandable.