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RBI loan pricing proposal: The Reserve Bank of India (RBI) has proposed a new framework for loan pricing. Its objective is to make changes in floating interest rates, spreads, and total costs more transparent for borrowers of small loans. The draft 'Reserve Bank of India (Interest Rate on Loans and Advances) Directions, 2026' will apply to commercial banks, regional rural banks, co-operative banks, all-India financial institutions, and non-banking financial companies (NBFCs)—including housing finance companies. The proposed directions are set to come into effect on April 1, 2027.

Here are the key proposals that borrowers should be aware of:

Clear reset framework for floating loan rates

Under the proposed framework, lenders must use internal or external benchmarks combined with risk-based spreads to price fixed and floating-rate loans. The benchmark, reset frequency, and reset date must be specified in the loan agreement.

For floating-rate loans, the benchmark reset period cannot exceed three months. However, this requirement will not be mandatory for certain smaller regulated entities (including 'base layer' NBFCs).

Vikas Kumar Mishra, Chief Financial Officer of Easy Home Finance, stated that the proposed framework could make floating-rate loans more predictable. Mishra said, "Linking every floating rate to a clear benchmark with a maximum reset cycle of three months provides necessary predictability for borrowers who have previously witnessed uneven transmission."

For borrowers, this does not mean there will be no changes to EMIs. Floating-rate loans can still become more expensive if the base benchmark rises. Instead, the proposed rules aim to bring greater clarity to the benchmark and reset mechanisms.

**Limits on lenders changing loan spreads**

The RBI has proposed restrictions on how lenders can alter the spread charged over the benchmark.

Spreads may include components such as the credit risk premium, operating costs, term premium, and business strategy-related factors. The credit risk premium can be adjusted if the borrower's credit profile changes, subject to a review. However, other components of the spread on floating-rate loans cannot be altered for a period of three years. This three-year period is to be calculated from the date of the initial loan disbursement or the last spread revision, whichever is later. Mishra noted that the proposed three-year stability for most spread components could make it easier to understand EMI fluctuations.

"The proposed three-year stability on loan spreads is a significant change," he said. "Fixing most spread components for three years after disbursement or a revision should reduce uncertainty and make EMI changes easier to comprehend."

Siddharth Manchanda, Partner at JSA Advocates & Solicitors, also highlighted the provision regarding 'spreads' as a key aspect of the draft. He noted that while the non-credit-risk components of the spread cannot be increased during the three years, any reductions must be implemented without discrimination.

**Potential APR ceiling for loans up to ₹50,000**

The proposed framework also includes a specific provision for small-ticket loans. The RBI intends for lenders to implement a ceiling on the Annual Percentage Rate (APR) for microfinance loans and low-value loans. The APR will encompass not only the interest rate but also all other charges and fees. Loans of smaller amounts refer to personal loans of up to ₹50,000.

This can make it easier to compare the total cost of borrowing, especially when fees and other charges constitute a significant portion of the cost. Manchanda noted that for small loans, the quoted interest rate (headline interest rate) does not always reflect the borrower's total cost.

He said, "In that segment, the headline rate was never the real story; the actual fee structure was what mattered. Consolidating everything into a single figure is the change that will truly be felt."

**Uniform method for interest calculation**

The RBI has also proposed a common method for calculating interest. For most loans, interest will be charged on a monthly basis and calculated on the daily reducing balance using the 'actual/actual day-count convention'.