RBI proposes tighter loan pricing rules for banks and lenders

The Reserve Bank of India is a big bank that makes rules for other banks in India.

It has proposed new rules about the interest banks can charge on loans.

Interest is the extra money you pay back when you borrow money.

Under the new rules, banks must use an official guide number, called a benchmark, to set their interest rates.

Banks will not be allowed to charge less than the benchmark plus extra costs for fixed-rate loans.

For loans whose interest can change over time, like personal and small business loans, commercial banks must use an outside benchmark.

The RBI also wants to stop lenders from charging too much for small loans, like a ₹50,000 personal loan, by setting a limit on the yearly cost.

Special rules for short-term farm loans would stop interest and charges from ever exceeding the amount borrowed.

Banks must check their pricing rules at least once every year.

The new rules are expected to start on April 1, 2027, and older loans must switch to them by April 1, 2029.