RBI Eases Loan Norms to Benefit Borrowers and Banks
To assist banks and borrowers, the RBI created new loan regulations in 2025. Banks are now required to verify that a borrower's monthly loan payments do not exceed 50% of their income. When their EMI resets, borrowers have the option to switch between fixed and fluctuating loan rates. In order to help borrowers pay less when interest rates decline, banks can also lower loan interest spread earlier. More persons and small banks are able to provide gold loans by employing gold or silver that is employed in various sectors. Clearer guidelines for loan app fairness and no hidden fees were also established by the RBI. Everyone benefits from these developments in terms of safer, more affordable, and easier borrowing.
MARKET NEWS
10/8/20251 min read
In order to improve borrower advantages, strengthen financial discipline, and conform to international regulatory standards, the Reserve Bank of India (RBI) implemented a number of new lending regulations and guidelines on October 1, 2025.
Key changes include:
Loan-to-Income (LTI) Ratio restriction: To prevent borrowers from taking on excessive debt, the RBI set a restriction on the total amount of unsecured personal loan EMIs at 50% of the borrower's monthly income. Instead of relying on borrower self-declaration, this law requires lenders to rigorously confirm current debt commitments.
Flexibility in Spread Reduction: Previously, banks could only adjust the interest rate spread applied to loans once every three years. By allowing banks to lower spread components for current borrowers before the three-year mark, the new RBI rules facilitate faster transmission of monetary policy rate cuts to loan rates, which lowers interest costs for borrowers.
Option to Change Loan Interest Rate Type: In order to protect current borrowers from rate volatility, banks can now give them the choice to move from floating to fixed interest rates when EMIs on personal loans with floating rates are adjusted.
Expanded Gold Loan Requirements: Borrowers who use gold or silver as raw materials in manufacturing or industrial processing—rather than merely jewelers—are now eligible for gold loans. Additionally, Tier 3 and Tier 4 cooperative banks can now offer gold loans, expanding access to credit in smaller communities.
Updated Credit Risk and Capital Regulations: To reduce capital requirements for banks, the RBI suggested differentiating risk weights for different loan types, including corporate loans, MSMEs, and real estate. By April 2027, a revised Expected Credit Loss (ECL) provisioning system will be put into place to minimize capital effect and better conform to international norms.
Unified Framework for Lending to Related Parties: In an effort to improve governance and lessen conflicts of interest, the RBI proposed new regulations that would take effect in April 2026 and govern loans made between banks and related parties with specified approval thresholds for board supervision.