Reserve Bank of India (Small Finance Banks – Interest Rates on Advances) Directions, 2025
UR
- Applies toSmall finance banks
- StatusIn force
- IssuedNov 28, 2025
- Amendmentsnone tracked
- Length47 points in 5 sections · 4 min read
The four dates on this rule
- PublishedNov 28, 2025The day RBI put this document out. This is the same day as the Issued date on this rule.
- Starts to applyNov 28, 2025The day this rule starts to apply, as RBI's own text states it.
- Time to get readyNoneIt starts to apply on the day it was published.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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43 of the 47 points name no product and bind every product. All products.
What it says
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Stated by RBI — RBI’s own paragraph says this. We have only made it plainer.
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Needs judgement — RBI leaves this to the bank to settle, so nobody can give you a fixed number here.
Chapter I. Preliminary
1. Starts at once
The rules start the moment RBI issues them.
2. Who must follow this
These rules apply to every small finance bank.
Chapter II. General guidelines
Must know
1. Fixed or floating, bank's choice
The bank is free to offer any advance at a fixed or a floating rate.
2. Benchmark plus spread
The lending rate is the benchmark rate plus the parts of the spread.
3. Short fixed loans priced up
A fixed rate loan under three years cannot price below the benchmark.
4. Interest every month
Interest is charged on all advances at monthly rests.
5. Interest cannot pass the loan
For a small or marginal farmer the interest debited cannot exceed the principal.
6. Farmers are treated apart
On a long duration crop the bank may charge interest at annual rests.
7. Small loan rates be fair
The rate on a small personal loan must be justifiable against real cost.
Do it
8. The board writes the policy
A full board-approved policy on lending rates is required, microfinance included.
9. The benchmark goes in writing
The benchmark used for pricing must be written into the loan contract.
10. Round to the rupee
Interest on a rupee advance is rounded off to the nearest rupee.
Chapter III. Benchmark
Must know
1. Three old systems still run
Loans up to June 2010, then to March 2016, then after it, price differently.
2. Only one Base Rate
A bank can have only one Base Rate.
3. MCLR after April 2016
Floating rupee loans from April 1, 2016 are priced on the MCLR.
4. What goes into MCLR
Marginal cost of funds, negative carry on CRR, operating costs and tenor premium.
5. Tenor premium is for everyone
A change in tenor premium cannot single out a borrower or a loan class.
6. Thirty percent decides the tenor
A maturity bucket counts for the MCLR tenor only above 30 percent of funds.
7. Retail and MSME go outside
Floating personal, retail and MSME loans must sit on an external benchmark.
8. One benchmark per loan type
Within a loan category the bank must use one external benchmark only.
9. No mixing benchmarks
Two different benchmarks inside one loan category are not allowed.
Do it
10. Base Rate every quarter
The Base Rate is reviewed at least once in a quarter.
11. MCLR every month
The MCLR is reviewed and published every month on an announced date.
Chapter IV. Other aspects of lending rates
Must know
1. Same rule under Base Rate
Under the Base Rate the premium moves only on risk or on tenor premium.
2. Worse borrower pays more
The credit risk premium goes up only if the borrower's own risk got worse.
3. The spread cannot be negative
Business strategy and credit risk premium are positive or zero, never below.
4. Outside benchmark, free spread
Over an external benchmark the bank decides the spread itself.
5. Costs change in three years
The operating cost part of the spread may change once in three years.
6. The rate at first draw
The MCLR on the first drawdown holds until the next reset date.
7. Reset a year or sooner
Under MCLR the reset happens once a year or more often.
8. Old loans may move over
An existing borrower may switch to an MCLR loan on agreed terms.
9. Switching is not closing
A switch-over is not treated as closing the old facility early.
10. Free switch for some
Borrowers who may prepay without charge switch to the external benchmark free.
Do it
11. A spread policy as well
The board must also approve a policy setting out each part of the spread.
12. Outside rate every three months
A loan on an external benchmark is reset at least once in three months.
BankPulse example. A home loan sits on the repo rate. The repo moves in February and the borrower's rate has not changed by May. Three months have passed, so the reset RBI names is already overdue and the branch should have repriced the loan.
13. Base Rate is still published
The bank keeps reviewing and publishing its Base Rate as before.
Chapter V. Foreign Currency Advances
1. Foreign currency is free
The bank sets its own rates on advances in foreign currency, under its policy.
2. But on a market benchmark
Those rates still hang off a market determined external benchmark.
Chapter VI. Exemptions
1. Long fixed loans are outside
A fixed rate loan of more than three years is outside the benchmark rules.
2. Government schemes are outside
A loan under a government scheme carries the scheme's own rate.
3. Loans against own deposits
A loan to a depositor against his own deposit is outside these pricing rules.
4. Loans to own staff
Loans to the bank's own employees, serving or retired, are outside them too.
5. Loans to the top officers
So are loans to the chief executive and whole time directors.
Chapter VII. Repeal and Other Provisions
1. Old rules stand repealed
The earlier lending rate rules for these banks are repealed.
2. Old actions still stand
Anything done under the old rules stays governed by those old rules.
3. Old approvals still count
Approvals given under the repealed rules now come under these rules.
4. Other laws still apply
These rules add to other laws. They do not cut them down.
The same subject for other kinds of institution
The same subject for other kinds of institution.
RBI lending interest rate rules for rural co-operative banks
RBI lending interest rate rules for urban co-operative banks
Other RBI rules for small finance banks
RBI compliance officer and compliance function rules for small finance banks 2026
RBI credit bureau reporting rules for small finance banks 2025
RBI credit card and debit card rules for small finance banks 2025
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