Mumbai, The Reserve Bank on Wednesday issued draft rules on harmonised interest rate determination to align the policies between banks and non-banking finance companies (NBFCs).
At present, the regulatory framework on interest rates on advances is applicable only to commercial banks, while NBFCs are governed largely by conduct-related aspects, according to an RBI notification.
“It is proposed to issue harmonised directions for all regulated entities, prescribing a broad, principles-based framework for the determination of interest rates on both fixed rate and floating rate loans, commensurate with the nature, complexity, and scale of the operations of the regulated entity,” the draft said.
The directions, which will be called “Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026″, are proposed to come into effect from April 1 next year.
The release of the draft follows an August 5 announcement by Governor Sanjay Malhotra to harmonise the regulations.
The public has been given time until September 11, according to the draft released on Wednesday.
The directions will apply only to domestic operations of the regulated entities, and require all REs to have board-approved policies on interest rates on loans and advances, which should be reviewed at least once every year.
“This policy shall lay down various aspects related to pricing of loans, including microfinance loans. Such aspects shall, inter alia, include the methodology for determining interest rates, including defining the internal benchmark, the components of the spread, the loan categories, and the delegation of powers for loan pricing,” the draft rules said.
A RE shall explicitly put a ceiling on the Annual Percentage Rate (APR), inclusive of the interest rate and all other charges/fees on microfinance loans and small value loans, while ensuring that these are not usurious, the rules said.
For fixed-rate loans, a RE shall determine the interest rate on a fixed-rate loan with reference to its internal benchmark or an external benchmark, plus a risk-based spread; while for floating-rate loans, a RE shall determine the interest rate with reference to its internal benchmark or an external benchmark, plus a risk-based spread.
