2 weeks ago

RBI proposes new MCLR formula on 3-month moving average

RBI proposes new MCLR formula on 3-month moving average
RBI proposes 3-month MCLR reset for loans: What could change for borrowers and their monthly EMIs · livemint.com

Banks lend people money, and the interest they charge depends partly on what it costs the bank to get money in the first place.

In India, the central bank called the RBI makes rules to keep this fair and clear.

Right now, the RBI has suggested a new way for banks to work out that cost.

Instead of looking at just one moment, banks would look at the average cost of new deposits and borrowings over the past three months.

The RBI also wants this information to come automatically from the bank's systems so it can be checked easily.

This is part of a bigger plan to make loan pricing more transparent.

Banks would have to set floating loan rates using a benchmark plus a spread that reflects risk and costs.

The spread's risk part could never be negative, and it could only change if the borrower's credit situation changes.

The new rules would likely start in April 2027, and older loans would need to switch over by April 2029.

All of this is meant to help borrowers understand how their interest rates are set and changed.

Key facts

Regulator
Reserve Bank of India (RBI)
Draft directions
Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026
Proposed MCLR basis
Three-month moving average of marginal cost of domestic deposits and borrowings
Proposed effective date
April 1, 2027
Migration deadline for existing loans
April 1, 2029, via a one-time mapping exercise
Benchmark reset period
Not exceeding three months for MCLR-linked floating-rate loans (currently up to one year)
Credit risk premium rule
Must remain positive; revised only on change in borrower's credit profile
Data requirement
System-generated and independently verifiable calculation data

Sources

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