RBI proposes new interest rate rules for regulated entities, seeks public comments
The Reserve Bank of India is harmonizing interest rate determination methods for regulated entities. New guidelines will define internal benchmarks and loan pricing components for banks. Floating rate loans will have benchmark resets not exceeding three months. Existing loans must migrate to the new framework by April 2029. These draft guidelines are open for public comment until September 11.
The Reserve Bank of India (RBI) released draft guidelines on Wednesday, seeking public comments on new interest rate rules for regulated entities. The guidelines aim to harmonize the methodology for determining interest rates, including defining the internal benchmark, spread components, loan categories, and power delegation for loan pricing.
For floating rate loans, the benchmark rate resets on the first calendar day of the month following the reset date. The internal benchmark for commercial banks, regional rural banks, and urban co-operative banks in Tier 3 & 4 towns is based on the marginal cost based lending rate (MCLR). The spread for different loan categories is determined by the REs, comprising credit risk premium and additional components such as operating costs and business strategy premiums.
The spread components cannot be revised before three years for floating rate loans. All existing loans and advances linked to internal or external benchmarks will migrate to the new framework by April 1, 2029.
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