The Reserve Bank of India (RBI) has proposed harmonising and standardising the regulatory framework governing interest rates on loans across all regulated entities, a move aimed at making loan pricing more transparent and consistent for borrowers.Announcing the proposal as part of the August monetary policy decisions on Wednesday (August 5), RBI Governor Sanjay Malhotra said the central bank plans to bring greater uniformity in the way banks, non-banking financial companies (NBFCs) and other regulated entities determine and communicate lending rates.Currently, different categories of regulated entities follow different frameworks for pricing loans.Banks, for instance, use mechanisms such as the marginal cost of funds-based lending rate (MCLR) and external benchmark lending rate (EBLR), while other lenders operate under separate regulatory norms.In its Statement on Developmental and Regulatory Policies, the RBI said the proposed rationalisation seeks to harmonise the existing guidelines while retaining proportionality for different categories of regulated entities.
It also aims to address operational issues under the MCLR and EBLR frameworks.The proposal further seeks to standardise divergent market practices relating to how interest is charged on loans, including the day-count convention used to calculate interest and benchmark reset dates that determine when floating-rate loans are repriced.According to the RBI, these measures are expected to bring greater uniformity in lending practices, improve transparency in loan pricing, strengthen monetary policy transmission and enhance consumer protection.The central bank said draft directions incorporating these proposals will be issued shortly for public consultation.Commenting on the move, Vivek Iyer, Partner, Financial Services Risk Advisory at Grant Thornton Bharat, said conduct risk continues to remain a key regulatory focus alongside improving the ease of doing business.
He said the proposal to harmonise interest rate regulations across all regulated entities is aimed at creating a more consistent and transparent lending framework.Jyoti Prakash Gadia, Managing Director at Resurgent India Limited, said, the RBI’s review of policies around credit interest rates and urban co-operative banks are welcome steps towards strengthening financial stability and supporting sustainable growth.
He added that the central bank’s focus on transparency and regulatory improvements would help build a more resilient financial ecosystem.The proposal follows the RBI's recent efforts to improve transparency in interest rate regulations.In July, the central bank revised deposit interest rate norms , allowing banks to offer differential rates on bulk deposits based on their liquidity risk profile, while requiring deposit rates to remain uniform across branches for similar deposits of the same size.
The Reserve Bank of India (RBI) has proposed harmonising and standardising the regulatory framework governing interest rates on loans across all regulated entities, a move aimed at making loan pricing more transparent and consistent for borrowers.Announcing the proposal as part of the August monetary policy decisions on Wednesday (August 5), RBI Governor Sanjay Malhotra said the central bank plans to bring greater uniformity in the way banks, non-banking financial companies (NBFCs) and other regulated entities determine and communicate lending rates.Currently, different categories of regulated entities follow different frameworks for pricing loans.Banks, for instance, use mechanisms such as the marginal cost of funds-based lending rate (MCLR) and external benchmark lending rate (EBLR), while other lenders operate under separate regulatory norms.In its Statement on Developmental and Regulatory Policies, the RBI said the proposed rationalisation seeks to harmonise the existing guidelines while retaining proportionality for different categories of regulated entities. It also aims to address operational issues under the MCLR and EBLR frameworks.The proposal further seeks to standardise divergent market practices relating to how interest is charged on loans, including the day-count convention used to calculate interest and benchmark reset dates that determine when floating-rate loans are repriced.According to the RBI, these measures are expected to bring greater uniformity in lending practices, improve transparency in loan pricing, strengthen monetary policy transmission and enhance consumer protection.The central bank said draft directions incorporating these proposals will be issued shortly for public consultation.Commenting on the move, Vivek Iyer, Partner, Financial Services Risk Advisory at Grant Thornton Bharat, said conduct risk continues to remain a key regulatory focus alongside improving the ease of doing business. He said the proposal to harmonise interest rate regulations across all regulated entities is aimed at creating a more consistent and transparent lending framework.Jyoti Prakash Gadia, Managing Director at Resurgent India Limited, said, the RBI’s review of policies around credit interest rates and urban co-operative banks are welcome steps towards strengthening financial stability and supporting sustainable growth. He added that the central bank’s focus on transparency and regulatory improvements would help build a more resilient financial ecosystem.The proposal follows the RBI's recent efforts to improve transparency in interest rate regulations.In July, the central bank revised deposit interest rate norms , allowing banks to offer differential rates on bulk deposits based on their liquidity risk profile, while requiring deposit rates to remain uniform across branches for similar deposits of the same size.
