Reserve Bank of India proposes new draft loan interest rate guidelines

The Reserve Bank of India (RBI) has issued draft guidelines titled ‘Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026’ to harmonize interest rate directions across all regulated entities. The proposed framework aims to ensure effective monetary policy transmission, appropriate credit risk pricing, and fair treatment of borrowers.

Under the draft rules, which are intended to take effect on April 1, 2027, all floating-rate loans must reset within a maximum period of three months. The Marginal Cost of Funds Based Lending Rate (MCLR) calculations would utilize a three-month moving average of the weighted cost of fresh deposits and borrowings.

Kotak Institutional Equities noted that these changes may reduce pricing flexibility for large prime housing finance companies (HFCs) that currently utilize a ‘PLR minus’ model. The new structure, which requires floating-rate loans to be priced above the benchmark, could narrow the rate disparity between new and existing borrowers. While large HFCs may face reduced flexibility, the impact on the affordable housing segment is expected to be lower due to higher gross spreads.