Reserve Bank of India proposes new floating-rate loan guidelines

The Reserve Bank of India (RBI) has released a draft titled ‘Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026’ to increase transparency for borrowers with floating-rate loans. The proposed framework aims to standardize how banks and regulated entities determine interest rates, benchmarks, and spreads.

Under the proposal, lenders would face limited scope for changing benchmarks and the spreads charged on them. Specifically, changes to the credit-risk premium would require a thorough assessment of a borrower’s credit profile. Other spread components, such as operating costs and business strategy premiums, generally could not be altered for at least three years following the loan agreement.

For existing loans, the RBI proposes a one-time migration to the new framework, which must be completed by April 1, 2029. This transition requires borrower consent, and lenders are prohibited from charging fees for the migration. Additionally, the new interest rate applied after migration cannot exceed the rate applicable immediately prior to the change.

Loan agreements must clearly specify the benchmark, the reset frequency, and the reset date. For most floating-rate loans, the proposed reset frequency would be no more than once every three months.