The RBI draft guidelines propose a uniform framework for interest rates on loans across regulated entities. The Reserve Bank of India aims to improve monetary policy transmission, strengthen credit-risk pricing and ensure fair treatment of borrowers.
The central bank issued the draft titled “Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026.” The proposal follows the RBI’s developmental and regulatory policy statement issued on August 5, 2026.
RBI Draft Guidelines Set New Rules for Floating-Rate Loans
The proposed framework covers both fixed-rate and floating-rate loans. It follows a principles-based approach to interest-rate setting.
From April 1, 2027, banks must reset floating-rate loans within a maximum period of three months.
The draft also proposes changes to the calculation of the Marginal Cost of Funds Based Lending Rate (MCLR). Banks would calculate MCLR using a three-month moving average of the weighted cost of fresh deposits and fresh borrowings.
The RBI said existing rules already cover internal and external benchmark-based lending for floating-rate loans offered by commercial banks. These include Small Finance Banks and Local Area Banks.
RBI Draft Guidelines Address Benchmark and Credit Risk Practices
The RBI noted differences in how commercial banks determine internal benchmarks such as MCLR. It also pointed to limited regulatory guidance for fixed-rate loans.
The proposed framework sets clearer rules for changes in spreads on floating-rate loans.
Non-credit-risk components of the spread cannot be revised for three years. Banks can change the Credit Risk Premium only when the borrower’s credit profile changes.
The draft also extends interest-rate instructions to other regulated entities. These include Non-Banking Financial Companies, All India Financial Institutions, Regional Rural Banks, Urban Cooperative Banks and Rural Cooperative Banks.
Existing Floating-Rate Loans to Move to Revised Structure
Existing floating-rate loans must shift to the revised structure by April 1, 2029.
Banks will need the borrower’s consent for the migration. The transition must not involve additional fees or an increase in the interest rate.
The proposed changes are intended to bring greater consistency to lending practices across regulated entities.
Public Comments Invited on Draft Directions
The RBI has invited stakeholders and members of the public to submit comments on the draft directions by September 11, 2026.
Comments can be submitted through the RBI’s ‘Connect 2 Regulate’ portal or by email.
The central bank will examine the feedback before issuing final directions. The final framework will be released separately for different categories of regulated entities.
