RBI issues draft rules on harmonised interest rate determination to align the policies between banks and NBFCs

The Reserve Bank of India issued draft rules on harmonised interest rate determination to align the policies between banks and non-banking finance companies (NBFCs). The Reserve Bank has issued various instructions from time to time on interest rates on loans and advances for regulated entities (REs), with the objectives of ensuring effective monetary policy transmission, appropriate pricing of credit risk, and fair and non-discriminatory treatment of borrowers. At present, regulatory framework on interest rate on advances are applicable for Commercial Banks (including Small Finance Banks and Local Area Banks), covering, inter alia, instructions on internal and external benchmark-based lending frameworks for floating rate loans and determination of spreads over such benchmarks. Regulatory instructions on interest rates on loans and advances extended by other REs (i.e., Non-Banking Financial Companies, All India Financial Institutions, Regional Rural Banks, Urban Cooperative Banks, and Rural Cooperative Banks) are largely with regard to conduct related aspects. Further, with respect to Commercial Banks, divergent practices have been observed in certain aspects, including determination of MCLR (internal benchmark) and its components. In addition, the extant guidelines contain very limited regulatory instructions regarding fixed rate loans. Accordingly, it is proposed to issue harmonised Directions for all REs, prescribing a broad, principles-based framework for the determination of interest rates on both fixed rate and floating rate loans, commensurate with the nature, complexity, and scale of the operations of the REs.

Powered by Capital Market - Live News