Starting Oct 2, your EMIs could drop faster: RBI just changed the loan rate rules
Borrowers can also opt to switch to fixed-rate loans at the time of reset—a continuation of provisions first introduced in 2023. The RBI said these changes “benefit the borrowers, while providing greater flexibility to the lenders.”
- Sep 30, 2025,
- Updated Sep 30, 2025 7:17 AM IST
In a significant move to pass rate cuts to borrowers faster, the Reserve Bank of India has allowed banks to lower interest rates on floating rate loans more frequently, breaking from the earlier three-year restriction on modifying certain spread components.
The change, effective Wednesday, amends the RBI’s 2016 directions on interest rates for loans extended to retail, personal, and micro, small, and medium enterprises (MSMEs). While such loans must remain benchmarked to external reference rates, banks will now have greater flexibility to reduce the non-credit-risk components of the loan spread before the earlier three-year lock-in period.
Borrowers can also opt to switch to fixed-rate loans at the time of reset—a continuation of provisions first introduced in 2023. The RBI said these changes “benefit the borrowers, while providing greater flexibility to the lenders.”
In parallel, the RBI relaxed lending norms for jewellers, allowing banks to extend working capital loans against bullion to manufacturers using gold as raw material. The relief includes urban co-operative banks in tier-3 and tier-4 cities, expanding access beyond scheduled commercial banks.
Capital-raising rules were also eased. Banks can now include perpetual debt instruments (PDIs) issued overseas in foreign or rupee-denominated bonds as part of their Additional Tier 1 (AT1) capital—up to 1.5% of risk-weighted assets. Previously, only 49% of the eligible amount was permitted, based on a stricter dual threshold.
The central bank also released four draft circulars open for comment until October 20. These pertain to gold metal loans, the large exposures framework, intragroup exposures, and credit information reporting.
In a significant move to pass rate cuts to borrowers faster, the Reserve Bank of India has allowed banks to lower interest rates on floating rate loans more frequently, breaking from the earlier three-year restriction on modifying certain spread components.
The change, effective Wednesday, amends the RBI’s 2016 directions on interest rates for loans extended to retail, personal, and micro, small, and medium enterprises (MSMEs). While such loans must remain benchmarked to external reference rates, banks will now have greater flexibility to reduce the non-credit-risk components of the loan spread before the earlier three-year lock-in period.
Borrowers can also opt to switch to fixed-rate loans at the time of reset—a continuation of provisions first introduced in 2023. The RBI said these changes “benefit the borrowers, while providing greater flexibility to the lenders.”
In parallel, the RBI relaxed lending norms for jewellers, allowing banks to extend working capital loans against bullion to manufacturers using gold as raw material. The relief includes urban co-operative banks in tier-3 and tier-4 cities, expanding access beyond scheduled commercial banks.
Capital-raising rules were also eased. Banks can now include perpetual debt instruments (PDIs) issued overseas in foreign or rupee-denominated bonds as part of their Additional Tier 1 (AT1) capital—up to 1.5% of risk-weighted assets. Previously, only 49% of the eligible amount was permitted, based on a stricter dual threshold.
The central bank also released four draft circulars open for comment until October 20. These pertain to gold metal loans, the large exposures framework, intragroup exposures, and credit information reporting.