What changed
RBI consolidated and updated interest rate guidelines for Rural Co-operative Banks into a single Directions document. It mandates monthly rests for charging interest on all advances, except agricultural loans which follow crop-season-linked practices. Banks must now publish minimum and maximum lending rates at every branch and ensure board-approved pricing policies that avoid usurious rates.
What it means for you
RCBs must overhaul their interest computation systems to align with monthly rests, increasing operational complexity for non-agri loans. The transparency requirement (displaying rate bands) will pressure margins and may lead to more competitive pricing. Banks need to review their loan sanction processes for small-value loans, incorporating cash flow analysis and risk-based pricing.
What you must do
- Update loan management systems to charge interest on monthly rests for all non-agricultural advances.
- Publish minimum and maximum lending rates at every branch and on digital platforms.
- Ensure board-approved interest rate policies that consider cost of funds, transaction costs, and risk premium.
- Revise sanction procedures for small-value personal loans to include cash flow assessment and internal rating.
- Maintain existing seasonal compounding practices for agricultural advances.
Who it affects
State Co-operative Banks (StCBs), Central Co-operative Banks (CCBs), Rural Co-operative Banks (RCBs), Borrowers of RCBs, especially small-value loan customers
Do these Directions apply to all co-operative banks?
No, they apply only to Rural Co-operative Banks, defined as State Co-operative Banks and Central Co-operative Banks under the NABARD Act, 1981.
What is the key change for agricultural loans?
Agricultural advances are exempt from the monthly rests requirement. Banks must continue their existing practice of charging/compounding interest linked to crop seasons.
When do these Directions take effect?
They came into effect immediately upon issuance on November 28, 2025.