RBI New Loan Pricing Rules: The Reserve Bank of India (RBI) has proposed new rules for the way banks and other lenders decide interest rates on loans. The proposed changes are meant to give borrowers more clarity about why they are being charged a certain interest rate.
They also include extra protection for people taking small loans and microfinance loans. The RBI has invited public comments on the draft rules. The deadline for sending feedback is September 11, 2026. The proposed framework is expected to start from April 1, 2027, once the final rules are issued.
Under the proposed system
The RBI has said it found differences in the way banks were calculating their marginal cost of funds-based lending rate, or MCLR. The new framework is meant to bring more consistency to this process.
For fixed-rate loans, the proposed rules would link the interest rate to an internal or external benchmark along with a risk-based spread. Lenders would not be allowed to charge a rate below the applicable benchmark.
For floating-rate loans too, the final interest rate would be made up of a benchmark and a risk-based spread.
One major proposal affects floating-rate personal loans and loans given to micro, small and medium enterprises, or MSMEs.
The RBI has proposed that banks link these loans to an external benchmark. This can help borrowers benefit more clearly when policy changes lead to changes in benchmark interest rates. Existing loans that are already linked to benchmarks would need to move to the new framework by April 1, 2029 under the proposal.
For large commercial banks and other lenders with deposits above ₹1,000 crore, the internal benchmark would be based on the marginal cost of funds. The proposed calculation would use the average marginal cost of domestic deposits and borrowings over the previous three months. These lenders would also have to publish their internal benchmark on the first calendar day of every month.
The RBI’s current published data shows that lending rates such as MCLR and base rates still vary across banks, making transparency around the method used to price loans important for borrowers.
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The RBI has also proposed stronger safeguards for microfinance and small-value loans. Lenders would have to set a ceiling on the annual percentage rate, or APR, charged on these loans.
APR gives borrowers a broader picture of the cost of a loan because it takes interest as well as other applicable charges into account. Under the proposal, a personal loan of up to ₹50,000 taken by an individual would come under the small-value loan category.
The RBI also wants lenders to make sure that the rates charged on these loans are not excessive or unfair. Existing RBI rules for microfinance loans already require lenders to have board-approved pricing policies and ceilings on interest rates and charges.
The proposed rules would cover a wide range of regulated lenders. This includes banks, non-banking financial companies, cooperative banks, housing finance companies and all-India financial institutions.
For borrowers, the biggest change could be greater clarity about how their interest rate is decided and what part of the rate comes from the lender’s benchmark and risk-based spread. The new system is also aimed at making loan pricing more closely connected to the actual risk of the borrower while reducing unclear or excessive charges.
The proposals are still in the draft stage. The RBI will consider feedback received by September 11 before finalising the rules. If approved, the new framework is proposed to come into effect from April 1, 2027.
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