Skip to main content

Reset of Floating Interest Rate on EMI based Personal Loans

Reserve Bank of India (RBI) has issued guidelines on reset of floating interest rate on Equated Monthly Instalments (EMI) based personal loans.

What are the types of interest rates on loans?

The Regulated Entities (REs) can offer all categories of loans / advances either on fixed or floating interest rates basis.

Fixed interest rate loans

  • The interest rate remains fixed for the entire tenure of the loan.
  • It is beneficial to the borrowers in rising interest rate scenario and is advantageous to the lenders in falling interest rate scenario.

Floating interest rate loans

  • The interest rate is reset (i.e. increased / decreased) at periodical intervals during the tenure of the loan.
  • It is beneficial to the borrowers in falling interest rate scenario and is advantageous to the lenders in rising interest rate scenario.

What is External Benchmark Lending Rate (EBLR) regime?

Reserve Bank of India (RBI) had constituted an Internal Study Group (Chairman: Dr. Janak Raj) to study the various aspects of the MCLR system from the perspective of improving the monetary transmission and exploring linking of the bank lending rates directly to market determined benchmarks. The Study Group had recommended a switchover to an external benchmark for effective transmission of monetary policy.

Accordingly, External Benchmark Lending Rate (EBLR) regime was introduced and the following loans were linked to external benchmarks –

  • All new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans to Micro and Small Enterprises extended by banks from October 01, 2019.
  • All new floating rate loans to Medium Enterprises extended by banks from April 01, 2020.

The interest rate under EBLR regime is to be reset at least once in 3 months.

What are the external benchmarks?

The external benchmarks include –

  • RBI policy repo rate.
  • Government of India 3-months / 6-months Treasury Bill yield published by the Financial Benchmarks India Private Ltd (FBIL).
  • Any other benchmark market interest rate published by the FBIL.

What are the guidelines on reset of floating interest rate?

  • At the time of sanction, REs shall clearly communicate to the borrowers about the possible impact of change in benchmark interest rate on the loan leading to changes in Equated Monthly Instalments (EMI) and / or tenor or both. 
  • Subsequently, any increase in the EMI / tenor or both on account of change in benchmark interest rate shall be communicated to the borrower immediately.
  • At the time of reset of interest rates, REs may, at its option, provide a choice to the borrowers to switch over to a fixed rate.
  • The borrowers shall also be given the choice to opt for –
    • Enhancement in EMI or elongation of tenor or a combination of both.
    • Prepay, either in part or in full, at any point during the tenor of the loan. 
  • All applicable charges / costs incidental to the exercise of the above options shall be transparently disclosed in the sanction letter and also at the time of revision of such charges / costs by the REs.
  • REs shall ensure that the elongation of tenor does not result in negative amortisation. (Negative amortization means that even after repayment, the amount owed still goes up because repayment is not enough to cover the interest.)
  • REs shall share / make accessible to the borrowers, a statement at the end of each quarter which shall at the minimum, enumerate the principal and interest recovered till date, EMI amount, number of EMIs left and annualized rate of interest / Annual Percentage Rate (APR) for the entire tenor of the loan. 

Which loans are covered under the guidelines?

  • The guidelines are applicable to EMI based personal loans. Personal loan refers to a loan given to individual and consists of –
    • Consumer credit
    • Education loan
    • Loan given for creation / enhancement of immovable assets (e.g., housing, etc.)
    • Loan given for investment in financial assets (shares, debentures, etc.)
  • The guidelines would also apply, mutatis mutandis, to all equated instalment based loans of different periodicities. 

From when are the guidelines applicable?

REs shall ensure that the guidelines are extended to the existing as well as new loans by December 31, 2023. 


References

Reserve Bank of India. (2017, October 04). 'Report of the Internal Study Group to Review the Working of the Marginal Cost of Funds Based Lending Rate System'. Retrieved from https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=878

Reserve Bank of India. (2018, January 04). 'XBRL Returns - Harmonization of Banking Statistics'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11199&Mode=0

Reserve Bank of India. (2019, September 04). 'External Benchmark Based Lending'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11677&Mode=0

Reserve Bank of India. (2020, February 26). 'External Benchmark Based Lending – Medium Enterprises'. Retrieved from https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11815&Mode=0

Reserve Bank of India. (2023, August 18). 'Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12529&Mode=0#F1

Reserve Bank of India. (2025, September 29). 'RBI Issues Amendment Directions/Circulars'. Retrieved from https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=61313

Reserve Bank of India. (2025, September 29). 'Reserve Bank of India (Interest Rate on Advances) (Amendment Directions), 2025'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12902&Mode=0


Follow at - Telegram   Instagram   LinkedIn   Twitter   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Regulatory Measures for the Foreign Exchange Market

Reserve Bank of India (RBI) has announced regulatory measures for the foreign exchange market. Cancellation and rebooking / rollovers of foreign exchange derivative contracts An Authorised Dealer shall not permit users to rebook any foreign exchange derivative contract involving the INR, whether deliverable or non-deliverable, which has been cancelled with any of the Authorised Dealers. An Authorised Dealer may, however, continue to permit users to rollover foreign exchange derivative contracts on maturity, subject to compliance with the extant directions. Threshold limit for taking positions without requirement to establish the existence of underlying Authorised Dealers were permitted to allow users to take positions upto USD 100 million equivalent of notional value (outstanding at any point of time), across all Authorised Dealers, for hedging contracted exposure without the requirement to establish the existence of underlying exposure.  Further, a user was allowed to take positio...
Post a Comment
Read more

Credit Facilities to Scheduled Castes (SCs) & Scheduled Tribes (STs)

Reserve Bank of India (RBI) has issued guidelines on credit facilities to Scheduled Castes (SCs) & Scheduled Tribes (STs). What are the guidelines on credit facilities to SCs & STs? District Level Consultative Committees formed under the Lead Bank Scheme should continue to be the principal mechanism of co-ordination between banks and development agencies.  National Scheduled Tribes Finance & Development Corporation and National Scheduled Castes Finance & Development Corporation have been set up under the administrative control of Ministry of Tribal Affairs and Ministry of Social Justice & Empowerment, respectively. Banks should advise their branches / controlling offices to render all the necessary institutional support to enable these institutions to achieve the desired objectives. Loans sanctioned to State Sponsored Organisations for Scheduled Castes / Scheduled Tribes for the specific purpose of purchase and supply of inputs and / or the marketing of the out...
Post a Comment
Read more

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) (Updated as on September 11, 2026)

Reserve Bank of India (RBI) has issued the directions on maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) by banks. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Payments Banks (PBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) District Central Co-operative Banks (DCCBs) What is CRR? Every bank shall maintain in India by way of cash reserve, a sum equivalent to such percent of its Net Demand and Time Liabilities (NDTL) in India, as the RBI in terms of Section 42(1) of the RBI Act, 1934 (for scheduled banks) and Section 18(1) of the Banking Regulation Act (BR Act), 1949 (for non-scheduled banks) [including provisions of Section 18(1) of the BR Act as applicable to co-operative banks], may specify. What is incremental CRR? In terms of Secti...
Post a Comment
Read more

Framework for Self-Regulatory Organisations in the FinTech Sector (Updated on September 10, 2026)

Reserve Bank of India (RBI) has released the framework for self-regulatory organisations in the FinTech sector. What are FinTechs? For the purpose of membership of an Self-Regulatory Organisations for FinTech Sector (SRO-FT), FinTechs may be defined as entities that provide technological solutions for delivery of financial products and services to businesses and consumers or encompass regulatory and supervisory compliance in partnership with traditional financial institutions or otherwise.  What is the need of Self-Regulatory Organisations for FinTech Sector? FinTechs play a pivotal role in redefining financial services by saving time, enhancing access, and lowering costs. While the FinTechs bring various innovations, the FinTech sector also raises concerns relating to customer protection, data privacy, cyber security, grievance handling, internal governance, financial system integrity, etc. A judicious balance between maximising the creative potential of FinTechs, while minimising...
Post a Comment
Read more

What is Ways and Means Advances (WMA)? (Updated as on September 25, 2026)

Reserve Bank of India (RBI) has recently announced the Ways and Means Advances (WMA) limit for the Government of India. So, what is WMA? What is Ways and Means Advances (WMA)? Ways and Means Advances (WMA) is a collateral free clean advance availed by the Central and State Governments from RBI, to tide over temporary mismatches in the receipts and payments. Section 17(5) of the Reserve Bank of India Act, 1934 empowers RBI to grant WMA to Central and State Governments, as and when required by them. What is Special WMA / Special Drawing Facility (SDF)? In addition to WMA, State Governments are also eligible for a Special Drawing Facility (SDF), which is granted against collateral of Government Securities held by the State Governments.  SDF availed by State Governments / UTs is linked to the quantum of their investments in marketable securities issued by the Government of India, including Auction Treasury Bills (ATBs).  (Updated as on June 28, 2024) Based on the recommendations m...
Post a Comment
Read more