RBI has made it mandatory for banks to link all new floating-rate loans for housing, auto and MSMEs to external benchmark like repo from October 1, a move aimed at ensuring faster transmission of policy rate cuts to borrowers.

Industry and retail borrowers have been complaining that banks do not pass on the entire RBI's policy rate (repo rate) reduction to them.

In a circular issued on Wednesday, the Reserve Bank of India (RBI) said it has been observed that due to various reasons, the transmission of policy rate changes to the lending rate of banks under the current marginal cost of funds based lending rate (MCLR) framework has not been satisfactory.

Therefore, it has now decided to make "it mandatory for banks to link all new floating rate personal or retail loans and floating rate loans to MSMEs (micro, small and medium enterprises) to an external benchmark effective October 1, 2019", the circular said.