The Reserve Bank of India has put out a draft framework that could change how quickly your EMI reflects a rate cut — or a hike. The proposed “Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026” would come into effect from April 1, 2027, following an August 5 announcement by Governor Sanjay Malhotra to harmonise interest rate regulations across lenders.At the heart of the proposal is a simple complaint many borrowers already have — rate cuts take forever to show up in their EMI.
Floating-rate loans would need to be linked to a benchmark that resets at least every three months for most regulated entities, and the exact benchmark, reset frequency and reset date would have to be spelled out clearly in the loan agreement itself, according to the draft. This timeline applies broadly, whether you’ve borrowed from a bank, an NBFC, a cooperative bank or a housing finance company.Lenders will also have to standardise how they calculate the Marginal Cost of Funds Based Lending Rate, if the draft goes through as written. The RBI has proposed a three-month moving average of the weighted cost of fresh deposits and borrowings, replacing the current patchwork of methods banks use. Sources familiar with the draft say this is meant to fix long-standing inconsistencies in how different lenders arrive at their internal benchmark.
Borrowers also get some protection built in. Non-credit risk components of a floating rate can’t be revised for three years under the proposal, and the credit risk premium can only move if the borrower’s own credit profile actually changes — not simply because the lender wants to reprice the book.
For those already repaying a loan, the transition matters as much as the new rules themselves. Existing floating-rate loans would need to migrate to the revised structure by April 1, 2029, but only with the borrower’s consent, and without any extra fees or increase in the rate. According to finance experts quoted in the coverage, this isn’t a rate cut in disguise — it’s a mechanism fix. The advice for existing borrowers, once the final rules land, will be to compare the revised EMI and tenure carefully rather than just glancing at the headline rate.
The draft is currently open for public comments, with the RBI setting September 11 as the deadline for feedback through its website or by email. Final directions, expected to be issued separately for each category of lender, will follow once the central bank has reviewed the responses. Until then, nothing changes for existing borrowers — but it’s worth watching how the final version shapes up