← Business Metric: Industry Specific (Consumer, Services & Financial) (all topics)
EBLR / MCLR loan repricing lag
What it is
Two loan pricing regimes running in parallel. External Benchmark Linked Rate loans, mandatory for most retail and MSME lending since Oct 2019, reset directly with the repo rate. Marginal Cost of Funds based Lending Rate loans, used mainly for corporate credit, reset on the bank's own funding cost with a lag
The mix between them determines how fast a bank's asset yields move when RBI changes policy rates
Impact on industries
- In a cutting cycle EBLR books reprice almost immediately while deposits reprice only at maturity, so margins compress before funding costs follow - the asymmetry behind recent NIM pressure
- Private banks with larger EBLR-linked retail books repriced down faster than PSU books after 125bps of cuts, narrowing a NIM gap that had favoured them for years
- The asymmetry reverses in a tightening cycle, when asset yields rise ahead of deposit costs and margins expand
- A higher MCLR share cushions the downside, which is why corporate-heavy books have held margins better through this cycle