Loan Rate Switches Discretion and Transparency

1. Core Change: Replace Floating by Fixed Rate.

• Past Rule: This was required of lenders to provide this option.
• New Rule (Effective Oct 1, 2025): It is now discretionary on the part of the lender.
• Lender Policy: The right to change will be regulated by the policy that is approved by the Board of the lender, and the number of changes that can be made during the lending time.

2. Some of the main requirements of Floating Rate Loans are as follows.

• Benchmark & Spread: The banks have the freedom to determine a spread between the benchmark rate.
• Amendment of Terms: The Terms may be revised only after every three years, making sure that the borrowers can better predict and see the terms of their loans.

3. Specifics for MSME Loans

• Benchmark: MSME loans are still related to external benchmarks (such as EBLR).
• Risk -based Spread: Banks are allowed to impose a spread over the EBLR depending on the credit profile of a borrower.
• Revision Rule: It is also not possible to revise this spread unless after every three years.

4. Rationale for the Change

• Created by a fall in the price of money to the banks.
• Under the influence of the decrease in Cash Reserve Ratio (CRR) to 3% that decreases the negative returns of the banks and enables them to charge the price more freely.

5. Overall Context

• Such modifications come with the Amendment Directions, 2025.
• This is all geared towards making sure that there is transparency and consistency in the pricing of floating rate loans.