RBI proposes new loan pricing rules: Banks, NBFCs may face tighter interest rate norms
Under the proposed framework, banks and other regulated lenders will have to maintain a comprehensive, board-approved policy covering the pricing of loans and advances.
- Aug 12, 2026,
- Updated Aug 12, 2026 8:13 PM IST
The Reserve Bank of India (RBI) has proposed a new framework to standardise how banks and non-bank lenders price loans, with the aim of improving transparency and protecting borrowers from excessive or unclear interest charges. The draft rules seek greater consistency in interest-rate setting and stronger safeguards for small-value and microfinance borrowers.
Loan pricing policy
Under the proposed framework, banks and other regulated lenders will have to maintain a comprehensive, board-approved policy covering the pricing of loans and advances. The policy will have to specify the methodology for determining interest rates, internal benchmarks, components of spreads, loan categories and the delegation of powers for loan pricing.
The policy will also have to be reviewed at least once a year.
The RBI said it had observed divergent practices among banks in determining the marginal cost of funds-based lending rate (MCLR), an internal benchmark used for pricing certain loans. It also noted that existing regulatory instructions on fixed-rate loans were limited.
For fixed-rate loans, lenders will have to determine the interest rate with reference to an internal or external benchmark, along with a risk-based spread. Lenders will not be allowed to price loans below the applicable benchmark.
A similar approach will apply to floating-rate loans, where the interest rate will comprise an applicable benchmark and a risk-based spread.
Floating loans
The RBI has proposed that all floating-rate personal loans and advances to micro, small and medium enterprises (MSMEs) offered by banks should be linked to an external benchmark.
The move is intended to improve the transmission of monetary policy changes to borrowers and ensure that credit is priced appropriately for the underlying risk.
Existing loans linked to benchmarks will have to migrate to the proposed framework by April 1, 2029.
For commercial banks and other lenders with total deposits exceeding ₹1,000 crore, the internal benchmark will be based on the marginal cost of funds. The RBI has proposed calculating this as a moving average of the marginal costs of domestic deposits and borrowings over the preceding three months.
Such lenders will also have to publish their internal benchmark on the first calendar day of every month.
Cap proposed on small loans
The central bank has separately proposed safeguards against excessive pricing of microfinance and small-value loans. Lenders would have to establish a ceiling on the annual percentage rate (APR) charged on such loans and ensure that the rates are not usurious.
The APR represents the annual cost of credit to a borrower, including both interest and other charges. A personal loan of up to ₹50,000 taken by an individual would qualify as a small-value loan under the proposal.
The framework, once finalised, will apply to banks, non-banking financial companies, cooperative banks, mortgage lenders and all-India financial institutions.
The RBI has invited comments on the draft proposals by September 11. The new rules are proposed to take effect from April 1 next year.
The Reserve Bank of India (RBI) has proposed a new framework to standardise how banks and non-bank lenders price loans, with the aim of improving transparency and protecting borrowers from excessive or unclear interest charges. The draft rules seek greater consistency in interest-rate setting and stronger safeguards for small-value and microfinance borrowers.
Loan pricing policy
Under the proposed framework, banks and other regulated lenders will have to maintain a comprehensive, board-approved policy covering the pricing of loans and advances. The policy will have to specify the methodology for determining interest rates, internal benchmarks, components of spreads, loan categories and the delegation of powers for loan pricing.
The policy will also have to be reviewed at least once a year.
The RBI said it had observed divergent practices among banks in determining the marginal cost of funds-based lending rate (MCLR), an internal benchmark used for pricing certain loans. It also noted that existing regulatory instructions on fixed-rate loans were limited.
For fixed-rate loans, lenders will have to determine the interest rate with reference to an internal or external benchmark, along with a risk-based spread. Lenders will not be allowed to price loans below the applicable benchmark.
A similar approach will apply to floating-rate loans, where the interest rate will comprise an applicable benchmark and a risk-based spread.
Floating loans
The RBI has proposed that all floating-rate personal loans and advances to micro, small and medium enterprises (MSMEs) offered by banks should be linked to an external benchmark.
The move is intended to improve the transmission of monetary policy changes to borrowers and ensure that credit is priced appropriately for the underlying risk.
Existing loans linked to benchmarks will have to migrate to the proposed framework by April 1, 2029.
For commercial banks and other lenders with total deposits exceeding ₹1,000 crore, the internal benchmark will be based on the marginal cost of funds. The RBI has proposed calculating this as a moving average of the marginal costs of domestic deposits and borrowings over the preceding three months.
Such lenders will also have to publish their internal benchmark on the first calendar day of every month.
Cap proposed on small loans
The central bank has separately proposed safeguards against excessive pricing of microfinance and small-value loans. Lenders would have to establish a ceiling on the annual percentage rate (APR) charged on such loans and ensure that the rates are not usurious.
The APR represents the annual cost of credit to a borrower, including both interest and other charges. A personal loan of up to ₹50,000 taken by an individual would qualify as a small-value loan under the proposal.
The framework, once finalised, will apply to banks, non-banking financial companies, cooperative banks, mortgage lenders and all-India financial institutions.
The RBI has invited comments on the draft proposals by September 11. The new rules are proposed to take effect from April 1 next year.