The largest lender of the country, State Bank of India has decided to do away with the annual reset clause on all term loans.
"Most term loans have one-year reset clause, which I think is cumbersome both for the company as well as for the bank," SBI chairman Pratip Chaudhuri said.
"So, from now on, we will give term loans which will be linked to our base rate."
Every loan normally comes with a reset clause under which the interest rate for the borrower rises/falls at a stipulated date irrespective of change in benchamrk rates. This also causes fluctuation in net interest margin of banks.
"Having a reset every year suppresses our returns... it leads to uncertainty for corporates," Mr Chaudhuri said.