IDBI Bank has decided to adopt the Reserve Bank of India's policy repo rate as an external benchmark.

The IDBI Bank on Tuesday introduced repo-linked lending and bulk deposit rates, meeting the RBI deadline. The IDBI Bank has decided to adopt the Reserve Bank of India's policy repo rate as an external benchmark. Accordingly, all floating rate retail and MSME loans will be linked to the policy repo rate and any changes in rate by the central bank would be passed on to the customers, it said.

Festival-bound demands for home and auto loans now get cheaper with external benchmark linked rates.

The move follows the RBI directive that all banks should introduce external benchmark linked loans for retail, personal and micro, small and medium enterprises (MSME) borrowers from October 1.

As per the RBI given options, the loans can be linked either to the RBI policy repo rate, the Government of India three months or six months Treasury Bill yield or any other benchmark market interest rate published by the Financial Benchmarks India Private Ltd.

The Corporation Bank and Canara Bank have also launched repo based products.

But most banks have chosen to link their rates to the repo rate which is currently at 5.4 per cent. With the RBI expected to cut the rates by another 25 basis points, interest rates could reduce further.

From October 1, all SBI floating rate loans are to be linked to repo rate. The bank will charge 265 basis points spread above the current repo rate of 5.4 per cent, meaning an effective benchmark rate of 8.05 per cent.