The Reserve Bank of India (RBI) issued an amendment to the Interest Rate on Advances Directions, 2016, effective October 1, 2025. The amendments introduce key changes concerning both the spread components of interest rates and the floating interest rate reset on personal loans. First, the directions now permit banks to reduce other spread components for a loan category sooner than the previous three-year period for customer retention purposes, provided it is done on justifiable, non-discriminatory grounds and adheres to the bank’s internal policy. Second, the circular on Reset of Floating Interest Rate on EMI based Personal Loans dated August 18, 2023, has been modified. The earlier instruction requiring banks to provide the option to switch to a fixed rate during interest rate reset is now changed. Regulated Entities (REs) may, at their option, offer the borrower a choice to switch to a fixed rate based on their Board-approved policy, which may also specify the number of times a switch is permitted over the loan’s tenure. Correspondingly, specific FAQs related to this switch option have been deleted or modified.
RESERVE BANK OF INDIA
RBI/2025-26/83
DOR.CRE.REC.51/13.03.00/2025-26 Dated: September 29, 2025
Reserve Bank of India (Interest Rate on Advances) (Amendment Directions), 2025
Please refer to the Reserve Bank of India (Interest Rate on Advances) Directions, 2016 (‘Directions’) and the Circular on Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans dated August 18, 2023 (‘Circular’), read with FAQs issued on January 10, 2025 (‘FAQs’).
2. On a review, in exercise of the powers conferred by the sections 21, 35A and 56 of the Banking Regulation Act, 1949 and Section 45JA, 45L and 45M of the Reserve Bank of India Act, 1934 and sections 30A and 32 of the National Housing Bank Act, 1987, the Reserve Bank being satisfied that it is necessary and expedient in the public interest to do so, hereby issues the following Amendment Directions.
A. Reserve Bank of India (Interest Rate on Advances) Directions, 2016
In Chapter – IV, the following proviso shall be inserted after sub-paragraph 8 (e):
Provided that, the other spread components may be reduced by banks for a loan category earlier than three years for customer retention, on justifiable grounds, in a non-discriminatory manner, and in terms of the bank’s policy.
B. Circular dated August 18, 2023 on Reset of Floating Interest Rate on EMI based Personal Loans
Paragraph 2 (ii) shall be modified as under:
At the time of reset of interest rates, REs shall may, at its option, provide the option a choice to the borrowers to switch over to a fixed rate as per their Board approved policy. The policy, inter alia, may also specify the number of times a borrower will be allowed to switch during the tenor of the loan.
C. FAQs on Reset of Floating Interest Rate on EMI based Personal Loans
(i) Answer (b) to FAQ No 3 shall be modified as under:
(b) Switch to fixed interest rate for the remaining portion of the loan, where such an option is provided by the RE; and
(ii) FAQ Nos 4 and 5 shall be deleted.
3. The above amendments shall come into force from October 1, 2025.
(Vaibhav Chaturvedi)
Chief General Manager
