Key Details
The Draft Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026. do not prescribe cheaper loans. They seek to make the interest charged more transparent and predictable, while extending common pricing principles to fixed- and floating-rate loans offered by different types of regulated lenders.
What Would Change? | Proposed Rule | Why It Matters |
|---|---|---|
Interest calculation | Daily reducing balance using the actual number of days | Repayments reduce interest from the day they are credited |
Floating-rate reset | At least once every three months for most lenders | Benchmark changes reach borrowers more regularly |
Changes to spread | Non-credit-risk components generally cannot be revised for three years | Restricts frequent discretionary repricing after sanction |
Small-value loans | Lenders must set an overall APR ceiling for microfinance and personal loans up to ₹50,000 | Places interest and fees within a board-approved limit |
Existing loans | Migration by 1 April 2029, with borrower consent and no migration charge | Transition cannot itself increase the borrower’s rate |
Commencement | Proposed from 1 April 2027 | Final rules will follow public consultation |
What the RBI’s Proposed Loan-Pricing Rules Mean for Borrowers
1. Interest Will Reflect the Daily Outstanding Balance
Daily reducing balance: Interest would be calculated on the loan amount outstanding at the end of each day. A repayment or partial prepayment should therefore reduce the interest-bearing balance from the date it is credited.
Actual day count: Lenders would use the actual number of calendar days in the interest period and year, creating a common calculation method across regulated institutions.
Protection for smaller loans: For short-term agricultural loans of up to one year to small and marginal farmers, total interest, fees and charges could not exceed the principal. Separately, lenders would have to set an overall annual percentage rate ceiling for microfinance and personal loans up to ₹50,000.
2. Benchmark Changes Will Generally Pass Through Within Three Months
Maximum three-month reset cycle: Most lenders would have to reset floating-rate benchmarks at intervals not exceeding three months. Changes in the applicable benchmark should therefore reach borrowers within the agreed reset cycle—whether rates rise or fall.
Reset schedule cannot change: Once the reset frequency is specified in the loan agreement, the lender cannot change it during the loan’s tenure.
Limited exemptions: The mandatory three-month reset would not apply to base-layer NBFCs, Tier 1 and Tier 2 urban cooperative banks, or rural cooperative banks with deposits of up to ₹1,000 crore.
3. Lenders Will Face Limits on Changing the Spread
Understanding the spread: If the benchmark is 6.5% and the lender adds 2.5%, the borrower’s interest rate becomes 9%. The additional 2.5% is the spread, covering credit risk, operating costs, loan tenure and other commercial considerations.
Credit-risk changes require review: The credit-risk component could be revised only after a comprehensive review establishes that the borrower’s credit profile has changed.
Other components generally locked for three years: Non-credit-risk components of the spread generally could not be revised within three years of the first disbursement or the previous revision.
Earlier reductions permitted: Lenders may reduce these components earlier to retain customers, provided the decision is justified and applied without discrimination.
The three-year restriction would not be mandatory for the smaller NBFC and cooperative-bank categories exempted from the reset rule.
4. Existing Loans Will Receive Transition Protection
Migration deadline: Existing loans linked to internal or external benchmarks would have to move to the new framework by 1 April 2029.
Borrower consent required: A lender could not migrate an existing loan without the borrower’s consent.
No migration charge or immediate rate increase: The lender could not charge a fee for migration or impose a higher interest rate merely because the loan is moving to the new framework.
Rates are not permanently frozen: The protection applies at the point of migration. Future changes permitted under the new benchmark and spread rules could still affect the lending rate.
Policy Relevance
Daily-balance calculation and standardised day-count rules can make the amount charged easier to verify.
Limits on spread revisions address a less visible source of loan repricing, particularly after a borrower has already accepted the loan.
Faster resets improve monetary-policy transmission but expose borrowers more quickly to both falling and rising rates.
The exemptions for smaller NBFCs and cooperative banks recognise their operational constraints, though borrowers may consequently receive different protections depending on the lender.
The framework’s usefulness will depend on simple disclosures showing the benchmark, spread, annual percentage rate, reset date and effect of any subsequent change.
Follow the Full Draft Directions Here: Draft Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026