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    Question

    Regarding the External Benchmark Lending Rate (EBLR)

    framework, consider the following statements: 1. Banks are free to choose any external benchmark, including the repo rate or T-Bill yields. 2. The spread charged over the benchmark can be changed at the bank's discretion every month. 3. Banks must reset the interest rate for the borrower at least once every three months. Which of the statements above is/are correct? 
    A 1 and 2 only Correct Answer Incorrect Answer
    B 2 and 3 only Correct Answer Incorrect Answer
    C 1 and 3 only Correct Answer Incorrect Answer
    D 1, 2, and 3 Correct Answer Incorrect Answer
    E 3 only Correct Answer Incorrect Answer

    Solution

    Statement 2 is incorrect because the "spread" (the margin above the benchmark) must remain fixed for the tenure of the loan, unless the borrower's credit assessment undergoes a substantial change. However, the interest rate itself must be reset at least once every 3 months based on the benchmark movement.

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