The Reserve Bank of India has unveiled new draft regulations requiring borrower consent for benchmark changes and aiming to standardise floating-rate loan protocols, potentially offering greater borrower safeguard and transparency.
The Reserve Bank of India has proposed a fresh set of safeguards that would make it harder for banks to switch borrowers to a new loan benchmark without permission, in a move aimed at protecting customers with floating-rate loans from higher costs or weaker terms.
Under the draft rules, a lender would need the borrower’s consent before changing the benchmark used to price a loan. The new rate after any migration could not be higher than the rate that applied immediately beforehand, and lenders would be barred from levying a fee for the switch. The central bank also wants lenders to make sure borrowers are not left worse off when a loan is moved from one benchmark to another.
The changes matter most for floating-rate loans, where the benchmark can directly affect the interest rate, monthly instalments and the total repayment burden. According to the draft, if the original benchmark is no longer available, the lender would have to move the loan to another reference rate without harming the borrower. Loan contracts could also include fallback terms setting out what happens if the benchmark disappears.
The proposals sit within a broader effort by the RBI to standardise loan pricing. The draft says all existing loans linked to internal or external benchmarks should be brought on to the prescribed framework by April 1, 2029, through a one-time mapping exercise. It also calls for clearer disclosures on floating-rate loans, including the benchmark used, how often rates reset and the reset date.
For most floating-rate loans, the reset cycle would not be longer than three months, and once that frequency is chosen it would generally stay fixed for the life of the loan. The RBI has also set out rules for loans transferred between lenders: if the named lender does not change, existing pricing terms would continue, but if the borrower signs a new agreement with a new lender, the rate would follow that lender’s framework.
The draft is expected to take effect from April 1, 2027, if adopted after the RBI reviews public feedback. It builds on earlier measures, including the central bank’s 2019 decision to require new floating-rate personal and micro and small enterprise loans to be tied to external benchmarks, and its 2023 guidance on communicating the impact of benchmark changes on EMIs and loan tenure. Reuters and Indian media reports have also noted that recent RBI steps on spreads and reset rules are meant to improve policy transmission, though many borrowers have yet to see lower EMIs flow through evenly.
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