The Reserve Bank of India (“RBI”), in exercise of the powers conferred by the Section 21, Section 35A and Section 56 of the Banking Regulation Act, 1949 and Section 45JA, Section 45L and Section 45M of the Reserve Bank of India Act, 1934 and Section 30A and Section 32 of the National Housing Bank Act, 1987, vide Circular No. RBI/2025-26/83,[1] dated September 29, 2025, has issued a set of amendment directions modifying key provisions under the Interest Rate on Advances Directions, 2016, and related guidance concerning floating interest rates on EMI-based personal loans (“Amendments”). These Amendments shall come into effect from October 01, 2025.
Key Amendments:
- Reserve Bank of India (Interest Rate on Advances) Directions, 2016: Banks shall now be permitted to reduce spread components (other than the credit risk premium) for a loan category within 3 (three) years of the last reset, for the purpose of customer retention, subject to justifiable grounds and non-discriminatory policies aligned with the bank’s board-approved framework.
- Reset of Floating Interest Rate on EMI-Based Personal Loans (Circular dated August 18, 2023): Regulated Entities (“REs”) may now have the option to offer borrowers, the choice to switch to a fixed interest rate at the time of interest reset, in line with their internal policies. Policies may also define the maximum number of switches allowed during the loan tenure.
- FAQs (issued on January 10, 2025): FAQ 3(b) has been revised to reflect the borrower’s option to switch to a fixed rate if such an option is offered by the RE. FAQs 4 and 5 have been deleted to streamline guidance in line with the latest Amendments.
[1] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12902&Mode=0