RBI issues directions on fixed, floating rate loans

Published 13 August 2026 · finance

Which banks will be covered under RBI’s new draft? Benchmark setting process for fixed rate loans Floating rate loans get more transparency Personal loans and

Which banks will be covered under RBI’s new draft? Benchmark setting process for fixed rate loans Floating rate loans get more transparency Personal loans and MSME loans get a major provision MCLR calculation for banks Banks cannot simply keep increasing the spread Loan transfer: Will your interest rate change? What happens to existing loans? Benchmark change requires borrower’s consent What happens if the benchmark is discontinued? The Reserve Bank of India (RBI) has proposed a new framework to bring more uniformity and transparency to how lenders set interest rates on loans. The draft rules open for comments focus on fixed and floating-rate loans, benchmark-linked lending, changes in spreads and the treatment of existing loans. If implemented, the changes could impact home loan, personal loan, MSME borrowers, etc., particularly those with floating rate loans. The proposed framework is expected to come into effect from April 1, 2027.The proposed directions will apply to commercial banks, regional rural banks, urban and rural cooperative banks, all-India financial institutions and non-banking financial companies, including housing finance companies.The RBI says that a lender should determine the interest rate on a fixed rate loan with reference to its internal benchmark or an external benchmark, plus a risk-based spread.

The central bank proposes that the lender can't price a loan below the applicable benchmark for that loan.The RBI has proposed that lenders must set the interest rate on a floating-rate loan using an internal or external benchmark plus a risk-based spread.For most floating rate loans, the benchmark reset period cannot exceed three months. Once the reset frequency is chosen, it generally cannot be changed during the loan's tenor.A lender cannot charge an interest rate lower than the applicable benchmark for that loan. The loan agreement must clearly mention the benchmark used, how often the rate will be reset and the reset date.If the reset period is less than one month, the benchmark will be reset on the date on which the reset is due.In other cases, the benchmark should be reset on the first calendar day of the month in which the reset is due.For agricultural loans, the interest rate reset should be linked to the crop season, but the reset period cannot exceed 12 months.For commercial banks, all floating-rate personal loans and floating-rate loans to MSMEs must be linked to an external benchmark.As per the RBI draft, “All floating rate personal loans and floating rate loans extended to MSMEs by commercial banks shall be linked to an External Benchmark.