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      Question

      In the context of the RBI’s monetary policy, the

      External Benchmark Lending Rate (EBLR) framework was introduced to improve the transmission of policy rates. Which of the following is true regarding the EBLR? 
      A Banks are free to reset the EBLR once every year to ensure profit stability. Correct Answer Incorrect Answer
      B It allows banks to use their own internal cost of funds to set interest rates for retail loans. Correct Answer Incorrect Answer
      C Banks must link the interest rates on specified floating-rate retail and MSME loans to an external benchmark, such as the Repo Rate. Correct Answer Incorrect Answer
      D The EBLR framework applies only to Public Sector Banks, while private banks continue to use the MCLR. Correct Answer Incorrect Answer

      Solution

      To ensure that changes in the RBI's repo rate are passed on to borrowers more quickly, the RBI mandated the External Benchmark-based Lending Rate (EBLR) system. This requires banks to link specific loan categories to external market-determined benchmarks (like the Repo Rate or T-bill yields) rather than internal benchmarks like the MCLR, which were often slow to respond to policy changes.

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