A few EBLR loans are moved to fixed rates by banks in advance of a 25 basis point rate drop.

Under the direction of the new governor, Sanjay Malhotra, banks are switching some retail loan products from variable to fixed interest rates in preparation for a rate drop by the Reserve Bank of India (RBI) in its February monetary policy. According to bankers, this action will assist safeguard their profit margins. According to a PSU bank CEO who wished to remain anonymous, retail loans that are not required to be priced on external benchmark rates are being revalued as fixed rate loans. Vehicle loans, motorcycle loans, personal loans, and small business loans are examples of retail products for which banks have the option of charging interest based on external benchmark rates of lending (EBLR) or as fixed rate loans. Bank lending rates, especially for retail loans, typically fall anytime the central bank lowers interest rates, which causes margins to contract. Some banks have been switching from variable lending rates, or EBLR, to fixed rate retail loans in an effort to preserve net interest margins, or NIM, which are a gauge of banks' profitability. Bankers, meantime, applaud the RBI's recent move to lower the cash reserve ratio (CRR) in the December monetary policy that was just ended. It is anticipated that the action will bring in Rs 1.16 lakh crore to the banking system, which might increase banks' lending capabilities and contribute to higher net interest income (NII). The CRR drop could result in a 2–6 basis point (Bp) increase in domestic banks' net interest income, according to Radhika Rao, Executive Director and Senior Economist at DBS Bank (assuming all funds are allocated for loans).