Big RBI Move on Loan Rates: New Draft Rules Open for Public Comments

The Reserve Bank of India on Wednesday issued a proposed harmonised framework for the determination of interest rates on both fixed-rate and floating-rate loans across banks, NBFCs, and other regulated lenders, with tighter rules around benchmark-linked lending and spread revisions. The directions, proposed to take effect from April 1, 2027, are aimed at ensuring uniformity and transparency in fixing interest rates on loans and consumer protection.

The draft Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026, have been issued for public comments, following its August 5 announcement that it would rationalise the regulatory framework for interest rates on loans. The RBI has fixed September 11 as the deadline for receiving public comments through its website or via email. The RBI said that the new framework aims to standardise rules for different entities with the intention to increase transparency and ensure uniformity.

The proposed directions will apply to commercial banks, NBFCs, regional rural banks, urban and rural cooperative banks, all-India financial institutions, and housing finance companies. The RBI said the framework aims to harmonise rules across regulated entities while maintaining proportionality, address operational issues in the existing marginal cost of funds-based lending rate (MCLR) and external benchmark-linked lending rate frameworks, and standardise divergent practices around interest charging that are currently prevalent among some banks. Under the proposed framework, lenders can offer loans at either fixed or floating rates.

For both categories, the interest rate would have to be linked to an internal or external benchmark, along with a risk-based spread. A lender would not be allowed to price a loan below the applicable benchmark. For floating-rate loans, the benchmark, reset frequency, and reset date would have to be clearly specified in the loan agreement. The benchmark would have to be reset at a frequency chosen by the lender, but not more than once every three months.

Once fixed for a loan, the reset frequency would remain unchanged through the loan’s tenor, subject to specified exemptions for smaller cooperative banks, certain NBFCs, and some urban cooperative banks. For agricultural loans, the reset period would be linked to the crop season, but could not exceed 12 months.

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