Mumbai, Aug 27: The Reserve Bank of India (RBI) has proposed a new framework to make loan pricing easier to understand and help borrowers compare the cost of loans more clearly.

The proposed rules would bring banks, NBFCs and other regulated lenders under a more consistent system for setting interest rates on loans. If finalised, the framework is expected to take effect from April 1, 2027.

Under the proposed system, lenders would clearly specify the benchmark used for a loan and the additional spread charged over it. This could help customers understand how their interest rate is decided and why rates may differ between lenders.

The RBI has also proposed that parts of the spread that are not linked to credit risk should generally remain unchanged for three years for floating-rate loans. Changes related to a borrower’s credit risk would be allowed after reviewing the borrower’s credit profile.

For commercial banks, floating-rate personal loans and MSME loans would be linked to external benchmarks under the proposed framework. The interest-rate reset period would generally not exceed three months, which could allow changes in benchmark rates to reach borrowers more quickly.

The draft also proposes a ceiling on the annual percentage rate for microfinance and small-value loans, including interest and other charges. A small-value personal loan would cover loans of up to Rs 50,000.

For borrowers, the main benefit could be greater clarity about the actual cost of borrowing. Customers would be in a better position to compare loan offers, understand changes in interest rates and make more informed financial decisions.

The proposed framework is aimed at creating a simpler and more transparent lending system while ensuring that borrowers receive clearer information about the rates and charges attached to their loans.