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Informist, Monday, Sept. 29, 2025

MUMBAI – The Reserve Bank of India late Monday notified amendments to three circulars effective Wednesday and sought comments on four more drafts. Among the circulars coming into effect, the central bank amended a 2016 direction to allow banks to lower interest rates on floating rate loans more frequently.

According to the directions on interest rates on advances, the RBI mandated all floating rate loans extended to micro, small and medium enterprises, personal and retail use be externally benchmarked. The bank could determine the spread it would charge over the external benchmark, but could only change credit risk premium more than once every three years. Now, banks can reduce the other components of the spread earlier than three years for the benefit of borrowers, the RBI said.

At the same time, the central bank said banks can now provide the option to customers to switch over to fixed rate loans at the time of interest rate reset at their own discretion. According to the previously extant circular from 2023, regulated entities were mandated to provide the option to customers at the time of reset of interest rates.

"Vide the above Amendment Directions, it is proposed to revise the above provisions to benefit the borrowers, while providing greater flexibility to the lenders," the regulator said. 

The RBI also eased restrictions on providing working capital against or for bullion purchases to benefit jewellers. Amending its guidelines on lending against gold and silver collateral issued earlier this year, the regulator said it would extend a "carve-out" to allow banks to meet the working capital needs of any borrower that uses gold as a raw material or input in its manufacturing and industrial processing. The RBI also said that tier-3 and tier-4 urban co-operative banks could grant working capital loans under the new guidelines, which would otherwise only apply to scheduled commercial banks.

Rounding out the regulatory changes, the RBI will also make it easier for banks to augment their tier-I capital through overseas market. It also simplified the calculation of the total funds that could be raised through foreign currency or rupee-denominated bonds overseas for capital raising.

"Perpetual Debt Instruments (PDIs) issued in foreign currency/rupee denominated bonds overseas shall be eligible for inclusion in Additional Tier 1 (AT1) capital up to a maximum amount of 1.5 per cent of Risk Weighted Assets (RWAs) as per the latest available financial statements (audited or subjected to limited review)," the RBI said in the new circular. 

Earlier, foreign currency and rupee denominated bonds could make up only 49% of the "eligible amount". The "eligible amount" was the higher of the two – total additional tier-I capital or 1.5% of the banks' risk-weighted assets.

In addition to the three circulars that come into effect this week, the RBI also released four draft circulars. The drafts are to modify directions on gold metal loans, the large exposures framework, banks' intragroup transactions and exposures, and credit information reporting. The RBI sought comments on the draft circulars by Oct. 20.  End

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

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