Summary of this article
RBI proposes common rules for loan interest rate setting
New framework covers banks, NBFCs and other lenders
Borrowers could get greater clarity on loan pricing
The Reserve Bank of India (RBI) on August 12, 2026 proposed the common rules for banks and non-banking financial companies (NBFCs) to decide the rate of interest on loans. The move seeks to bring the interest rate framework for banks and NBFCs under one set of principles. At present, RBI rules on interest rates for advances apply to commercial banks, while NBFCs are mainly covered by regulations on conduct.
The proposed framework, called the Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026, is proposed to take effect from April 1, 2027.
Implications For Borrowers
The proposed rules would cover both fixed- and floating-rate loans. This means they could apply to different types of borrowings, including home loans, personal loans, vehicle loans and small value loans.
Under the draft, every regulated entity would need a board-approved policy for setting the rate of interest on loans and advances. The board would have to review this policy at least once a year.
The policy would need to explain how the lender prices loans. This would include the benchmark used to set rates, the components of the spread, different loan categories, as well as the authority deciding the pricing of loans.
Fixed And Floating Rate Loans
For both fixed- and floating-rate loans, lenders would have to link the rate of interest to either an internal benchmark or an external benchmark, along with a risk-based spread.
The benchmark provides a base for calculating the rate of interest on the loan, while the spread is an additional amount, which is charged by the lender. Spread may vary according to the borrower’s risk as well as other aspects of the lender’s pricing policy.
The draft also includes specific provisions for microfinance loans and small value loans. Lenders would have to set a clear ceiling on the annual percentage rate (APR) for these loans.
The APR would include the rate of interest on the loans as well as other charges and fees linked to it. The RBI has also proposed that such rates and charges should not be usurious.
Public Can Send Comments Until September 11
The proposed directions would apply to the domestic operations of regulated entities. The RBI released the draft after Governor Sanjay Malhotra announced on August 5 that the central bank would harmonise interest rate regulations.
The RBI has invited comments from the public and other stakeholders until September 11. If the directions are finalised, the common framework would apply from April 1, 2027. For borrowers, the key change would be a more clearly defined framework for how lenders set and review the rate of interest and related charges on loans.
