What changed
RBI consolidated and updated its directions on interest rates for advances by commercial banks, effective November 28, 2025. The new framework defines external benchmarks (Repo Rate, Treasury Bill yields, FBIL rates) and internal benchmarks, and mandates a board-approved pricing policy for all loans, including microfinance. It also clarifies definitions for terms like 'advance against own deposit' and 'floating rate loan'.
What it means for you
Banks must now ensure all floating rate loans (except those exempted) are linked to an external benchmark, reducing discretion in pricing. The comprehensive policy requirement increases governance and compliance burden. Lenders need to update their product documentation, IT systems, and risk management frameworks to align with the new definitions and benchmark rules.
What you must do
- Review and update your bank's board-approved policy on interest rates for advances to comply with the new directions.
- Ensure all floating rate loans (except exempted ones) are linked to an external benchmark as defined (Repo Rate, T-bill yields, or FBIL rates).
- Train lending and compliance teams on the revised definitions, especially for 'advance against own deposit' and 'microfinance loan'.
- Audit existing loan contracts to verify benchmark alignment and update documentation for new loans.
- Monitor RBI's list of exempted loans (paragraph 45) to ensure correct application of the external benchmark mandate.
Who it affects
All commercial banks (excluding Small Finance Banks, Payment Banks, Local Area Banks), Bank lending and credit teams, Bank compliance and risk management departments, Borrowers with floating rate loans
What are the external benchmarks allowed under the new directions?
The directions specify three external benchmarks: RBI policy Repo Rate, Government of India 3-month and 6-month Treasury Bill yields published by FBIL, and any other benchmark market interest rate published by FBIL.
Do these directions apply to foreign branches of Indian banks?
No, the directions explicitly state they are not applicable to operations of foreign branches of Indian banks.
What is the effective date of these directions?
The directions came into effect immediately upon issuance on November 28, 2025.