RBI Eases Lending Rules: Cheaper Loans, Easier Gold Credit from October 1

Key Changes Effective October 1

The immediate changes focus on interest rates, gold loans, and bank capital, designed to provide greater flexibility for lenders and benefits for borrowers.

1.  Floating Loans May Get Cheaper: For floating-rate personal, retail, and MSME loans, banks were previously allowed to adjust certain components of the interest spread only once every three years. The new rules now permit banks to reduce these spread components for the benefit of the borrower at any time. This means that when the RBI cuts policy rates, banks can pass on the benefit to existing borrowers faster, potentially leading to lower EMIs. Additionally, banks now have the discretion to offer borrowers the option to switch to a fixed-rate loan at the time of an interest rate reset.

2.  Expanded Access to Gold Loans: The RBI has broadened the scope of who can get working capital finance against gold and silver collateral. Previously, such loans were largely restricted to jewellers. Now, any borrower who uses gold or silver as a raw material in manufacturing or industrial processing becomes eligible. Furthermore, Tier 3 and Tier 4 Urban Co-operative Banks have also been allowed to extend such loans, expanding credit access for smaller businesses in regional areas.

3.  Stronger Bank Balance Sheets: To help banks raise capital more easily, the RBI has revised the limits for Perpetual Debt Instruments (PDIs) denominated in foreign currency or issued overseas. This provides banks with greater headroom to augment their Tier 1 capital from international markets, strengthening their financial base.

Draft Proposals for Public Feedback

 The RBI has also released draft guidelines on which it has sought stakeholder comments until October 20, 2025. Key proposals include:

Gold Metal Loans (GML): The central bank has proposed extending the repayment tenure for gold metal loans to 270 days from the current 180 days for non-exporting jewellers. It also plans to allow domestic jewellers who outsource their production to avail of these loans.

Faster Credit Reporting: To ensure credit reports are more current, the regulator has proposed that banks and other credit institutions submit data to credit information companies every week instead of fortnightly.

These comprehensive changes are expected to enhance monetary policy transmission, provide operational flexibility to banks, and improve credit access for borrowers.