The Reserve Bank of India (RBI) has proposed a new framework to standardise lending rate practices across banks and other regulated entities with the aim of improving transparency in loan pricing and strengthening borrower protection.
RBI Governor Sanjay Malhotra said the central bank plans to harmonise regulations governing interest rates on advances for all regulated entities.
The proposed changes are intended to bring uniformity in lending practices while addressing operational issues under the existing Marginal Cost of Funds-Based Lending Rate (MCLR) and External Benchmark Lending Rate (EBLR) systems.
According to the RBI’s statement on development and regulatory policies, the revised framework will focus on reducing differences in market practices related to interest rate calculations.
It will also standardise aspects such as day count conventions, which determine how interest is calculated, and benchmark reset dates for loans linked to external rates.
The new norms are scheduled to come into effect from October 1, 2026. The RBI will soon issue detailed draft directions and invite comments from stakeholders before finalising the framework.
The central bank said the proposed measures are expected to ensure greater consistency in loan pricing, improve transmission of monetary policy decisions to borrowers and enhance consumer protection.
The move follows a series of RBI initiatives aimed at increasing transparency in banking practices. In July, the central bank revised regulations related to deposit interest rates, allowing banks to offer different rates on bulk deposits based on liquidity risk considerations.
Under the revised deposit framework, banks can provide differential interest rates on bulk deposits after considering rates applicable to deposits and unsecured wholesale funding under the Liquidity Coverage Ratio (LCR) framework.
However, the RBI clarified that deposit rates must remain consistent across all branches of a bank and cannot vary among customers holding similar deposits of the same size.
Through the latest lending rate reforms, the RBI aims to create a more predictable and transparent borrowing environment. The changes are expected to benefit consumers by reducing inconsistencies in how lenders determine interest charges and reset loan rates.
The proposed framework is also expected to improve the effectiveness of monetary policy transmission by ensuring that changes in benchmark rates are reflected more uniformly across lending institutions.
