Now Reading: RBI proposes tighter loan pricing rules for banks, NBFCs
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RBI proposes tighter loan pricing rules for banks, NBFCs
Lenders will no longer be able to freely tinker with loan spreads under draft RBI rules meant to standardise interest-rate setting across banks, NBFCs and cooperatives. The spread between the benchmark rate…
The Story in Brief
Lenders will no longer be able to freely tinker with loan spreads under draft RBI rules meant to standardise interest-rate setting across banks, NBFCs and cooperatives. The spread between the benchmark rate and the loan rate must remain fixed for at least three years, except for documented changes in the borrower's credit profile. Floating-rate personal loans and MSME loans must link to an external benchmark like the repo rate.
Interest must be charged on monthly rests and calculated on a daily reducing balance. The RBI also proposed a cap on the annual percentage rate for small-value loans (up to Rs 50,000) and microfinance to prevent usurious pricing. Comments are due by September 11, and the rules are to take effect from April 1, 2025.
The Indian Opinion
Consumer activists may cheer this as an end to discriminatory pricing, while banks will warn of reduced flexibility. But the real test is whether the three-year freeze on non-credit spreads actually benefits existing borrowers or simply shifts discretion to the initial pricing. Watch how lenders calculate credit risk premiums, if these become a loophole, the reform will ring hollow.
Sources (2): businesstoday.in, timesofindia.indiatimes.com
This story was synthesised by AI from the 2 sources linked above.
Updated: this story now draws on 2 sources.
