RBI issues draft guidelines to harmonise interest rates on loans for banks
New Delhi, August 13
RBI issued draft rules on harmonised interest rate directions for all regulated entities to ensure effective monetary policy transmission, appropriate pricing of credit risk, and fair treatment of borrowers. The central bank published the draft guidelines on Wednesday, titled "Reserve Bank of India Directions, 2026," following its developmental and regulatory policies statement on August 5, 2026.
The proposed directions aim to create a principles-based framework for interest rates on both fixed and floating rate loans. Under the draft framework, effective April 1, 2027, all floating-rate loans will reset within a maximum period of three months. Marginal Cost of Funds Based Lending Rate (MCLR) calculations will use a three-month moving average of the weighted cost of fresh deposits and fresh borrowings.
"At present, regulatory framework on interest rate on advances are applicable for Commercial Banks (including Small Finance Banks and Local Area Banks), covering, inter alia, instructions on internal and external benchmark-based lending frameworks for floating rate loans and determination of spreads over such benchmarks," the RBI noted.
"Regulatory instructions on interest rates on loans and advances extended by other REs (i.e., Non-Banking Financial Companies, All India Financial Institutions, Regional Rural Banks, Urban Cooperative Banks, and Rural Cooperative Banks) are largely with regard to conduct related aspects," the draft document added.
The central bank observed divergent practices among commercial banks in determining internal benchmarks like MCLR and noted limited instructions for fixed-rate loans.
Non-credit risk spread components on floating-rate loans cannot undergo revision for three years, while the Credit Risk Premium can change only when the borrower's credit profile changes.
Existing floating-rate loans must migrate to the revised structure by April 1, 2029, with borrower consent and without additional fees or rate increases.
Stakeholders and public members can submit comments and feedback on the draft directions through the 'Connect 2 Regulate' portal on the RBI website or via email by September 11, 2026. Final directions will be issued separately for each regulated entity category after examining the feedback.
— ANI
Reader Comments
As an NRI with a home loan in India, this is welcome news. The current system of banks re-setting rates arbitrarily was frustrating. But I hope this doesn't lead to any hidden charges when my existing loan transitions to the new system. Transparency is key.
Good move towards harmonisation, but I am slightly concerned about the 3-year lock-in for non-credit spread components. If repo rates drop significantly, banks might still find ways to keep our effective rates high. RBI needs to monitor this closely.
The 3-month moving average for MCLR makes sense, it will smooth out the volatility. But the implementation timeline until 2029 feels too long. Indian borrowers need faster relief, yaar. Kuch toh jaldi karo RBI!
This is a step in the right direction, but I wish they covered fixed-rate loans more thoroughly. And what about the smaller NBFCs? They might not have the tech infrastructure to implement these changes smoothly. Need more clarity on that front.
As a small business owner, I appreciate this. We were always at the mercy of banks for rate revisions. A three-month reset cycle gives us more predictability. Let's hope the final guidelines are just as borrower-friendly.
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