RBI to standardize rules on loan rates to improve transparency, consumer protection

Mumbai: The Reserve Bank of India (RBI) plans to draft rules to standardize the pricing of loans, aiming to improve transparency and consumer protection, governor Sanjay Malhotra said on Wednesday.

“In order to enhance transparency in lending rates and strengthen consumer protection, it is proposed to harmonize and standardize the regulatory framework on interest rates on advances for all regulated entities,” Malhotra said in his statement after the monetary policy committee meeting.

The committee decided to keep the key policy repo rate unchanged at 5.25%.

There currently exist various guidelines on calculation of loan interest for different regulated entities, Malhotra said at a post-policy press conference. The proposal aims to standardize these norms to increase transparency and accuracy, allowing people to understand how interest rates are set.

“The main thing is that this is a rationalization exercise, which will increase consumer protection,” he said.

Malhotra clarified that the move should not be misunderstood to mean there will be changes in loan repayments or equated monthly installments. This is an initiative to understand interest rates transparently and the principles that govern them, he emphasized.

The RBI proposed to harmonize the guidelines across lenders while maintaining proportionality and address certain operational aspects of the marginal cost of funds-based lending rate (MCLR) and external benchmark-linked lending rate (EBLR) framework.

It will also look to standardize certain divergent market practices concerning the levy of interest including day-count conventions and benchmark reset dates.

“These measures seek to ensure uniformity, enhance transparency in loan pricing, strengthen monetary transmission and bolster consumer protection,” the RBI said, adding that draft directions will be issued shortly.

Currently, 67.6% of bank loans are under the EBLR regime.

“These parallel regimes need some standardization to ensure uniformity, enhance transparency in loan pricing, strengthen monetary transmission and bolster consumer protection,” Soumya Kanti Ghosh, group chief economic adviser of State Bank of India, said in a report on Wednesday. “The proposed measure is steering the loan pricing policy in this direction.”

Benchmarked rates

Since 1 October 2019, all floating-rate consumer loans are required to be linked to an external market benchmark, with the repo rate being the most widely used by banks. Other loans, especially corporate loans, are typically given as per the MCLR, which was introduced in April 2016.

Previously, loan rates were decided as per the base rate system, which was introduced in July 2010 to replace the benchmark prime lending rate (BPLR) used prior to that.

The proposal will not affect non-banking financial companies (NBFCs), including housing finance companies (HFCs), which are not required to link their loan rates to RBI-mandated benchmarks and typically use internal reference systems like their own prime lending rate (PLR) or reference rate to price loans.

Asked if the new proposal would mean that non-bank lenders have to benchmark their loans against the EBLR or MCLR regime, Malhotra clarified that no such major requirement has been proposed for NBFCs and that the new guidelines will not be a “major change” but only a rationalization.

“There is no major change. The emphasis is on transparency and is basically conduct-related,” deputy governor Shirish Chandra Murmu said.

Key ratios

As such, system-level financial parameters related to capital adequacy, liquidity, asset quality, and profitability of banks remain healthy, even though there has been “some moderation” in their net interest margins (NIM) since last year, Malhotra said in his statement earlier on Wednesday.

Outstanding credit by banks increased 18.6% on year in June whereas their deposits grew 13.3%. NIMs stood at 3.21% in June, lower than 3.26% a year ago. Gross NPA ratio of banks improved to 1.68% at the end of June from 2.22% a year ago, whereas the net NPA ratio at 0.40% was also better than 0.51% in the previous year.

System-level capital to risk-weighted assets ratio (CRAR) stood at 17.8%, well above the regulatory requirement, and the liquidity coverage ratio (LCR) was 126.94%. The annualized return on assets (RoA) was 1.32% as against 1.30% in June 2025, and the return on equity (RoE) was 13.2% compared with 13.02%.

Similarly, system-level parameters of non-bank lenders are “sound,” with adequate capital position, improved gross NPA ratios and higher profitability, Malhotra said.

The total CRAR of NBFCs was 25.4% and their tier-I capital ratio was at 23.6%. Gross NPA ratio improved to 2.50% in June from 3.09% a year ago whereas net NPA ratio at 0.84% was better than 1.00% in June 2025.

The RoA for the sector increased from 3.01% in June 2025 to 3.37% in June 2026. The NIM of non-bank lenders increased from 4.99% to 5.39% over this period.