Mumbai, Aug 12: The Reserve Bank of India on Wednesday proposed a uniform framework for fixing interest rates on loans across banks and other regulated lenders, including tighter rules governing benchmark-linked lending and revisions to floating interest rates.
The proposed framework, which is scheduled to take effect from April 1, 2027, is aimed at bringing greater transparency and uniformity to loan pricing while strengthening consumer protection.
The RBI has issued the draft Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026 for public comments. The central bank has invited feedback until September 11 through its website or email.
The proposed directions will apply to commercial banks, non-banking financial companies (NBFCs), regional rural banks, urban and rural cooperative banks, all-India financial institutions and housing finance companies.
Under the proposed framework, lenders would be permitted to offer loans at either fixed or floating interest rates. In both cases, the lending rate would have to be linked to an internal or external benchmark along with a risk-based spread.
A lender would not be permitted 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 could be reset at a frequency chosen by the lender, but not more than once every three months. Once the reset frequency is fixed for a loan, it would remain unchanged throughout the loan tenure, subject to specified exemptions.
The RBI has proposed certain exemptions for smaller cooperative banks, some NBFCs and specified urban cooperative banks.
For agricultural loans, the reset period would be linked to the crop season, but would not be permitted to exceed 12 months.
The central bank said the proposed framework seeks to harmonise regulations applicable to different categories of regulated entities while maintaining proportionality.
It also seeks to 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 in interest charging currently followed by some lenders.
The RBI said the proposed directions are intended to simplify and standardise the regulatory framework governing interest rates on loans, while improving transparency for borrowers.
The draft follows the RBI’s August 5 announcement that it would rationalise the regulatory framework for interest rates on loans.
The central bank has sought public feedback before finalising the directions, with the new framework proposed to come into force from April 1, 2027.
