The central bank said that banks can lower the other spread components, including operating costs, earlier than three years for the benefit of the borrower. | Photocredit: Reuters/Francis Mascarenhas
In the opinion of lenders, the RBI has left it whether they want to offer the choice to borrowers to switch to a fixed rate at the time of interest rates on the monthly delivery (EMI) -based personal loans.
Furthermore, regulated entities/res (banks and NBFCs, including housing financing companies) no longer need to offer a fixed interest product in all equivalent installment -based personal loan categories.
Until now, the RBI required the regulated entities/res (banks and NBFCs, including home financing companies) to offer a mandatory option to the borrowers, at the time of reset of interest rates on EMI-based personal loans, to switch to a fixed rate.
“At the time of reset of interest rates, RES can, according to their option, offer the borrowers a choice to switch to a fixed rate according to them by the Executive Board,” the Central Bank told all Res in a circular.
Thus, whether the customer can allow flexibility to switch from the loan from the variable rate to a loan with a fixed rate or vice versa subject to applicable costs, is now entirely to the discretion of the creditor.
The circular has retained the policy, whereby the lenders can specify the number of times that a borrower can switch during the tendency of the loan.
Free to choose
The central bank said that banks can lower the other spread components, including operating costs, earlier than three years for the benefit of the borrower.
According to the earlier circular, while banks are free to decide the distribution across the external benchmark, unlike credit risk premium, all components of the spread can only be changed once every three years.
Banking Expert against Viswanathan noted that originally RBI proved that spread components can only be changed once every 3 years, except for credit premium, which can be changed on the basis of delinquency in a certain segment within 3 years.
Now RBI says that the other components such as tenor premium, operating costs, fund costs, negative Carry on CRR (Kas Reserve ratio) can be changed within 3 years, provided that it is for borrowers.
“The reason for this change is that the costs of funds for most banks have come and a negative return on CRR is less, because CRR is now being reduced from 4 percent to 3 percent.
“So, RBI is indirectly pushing banks to reduce the distribution in EBLR loans as the costs of funds and the negative return on CRR,” Viswanathan said.
Published on September 30, 2025
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