RBI proposes to rationalise interest rate framework to boost transparency, consumer protection

On Wednesday, the Reserve Bank suggested streamlining the interest‑rate rules for all regulated entities to make loan pricing clearer, improve how monetary policy is transmitted, and increase consumer safeguards.

Key Takeaways

• RBI proposed rationalising interest rate rules for all regulated entities to boost transparency and consumer protection.
• Governor Sanjay Malhotra said the reform aims to align and standardise lending rate rules for advances.
• The overhaul will address operational details of existing MCLR and EBLR frameworks.
• It also seeks to unify varying market practices on interest calculation, such as day-count conventions.

The Reserve Bank plans to overhaul the interest‑rate regulations for all regulated entities using a principle‑driven approach.

To boost clarity in lending rates and reinforce consumer protection, we propose aligning and standardising the interest‑rate rules for advances across all regulated entities,” said RBI Governor Sanjay Malhotra when presenting the third bi‑monthly monetary policy review for the fiscal year.

The proposed overhaul seeks to align the rules for all regulated entities while keeping proportionality, tackle specific operational details of the existing MCLR and EBLR frameworks, and unify varying market practices on interest calculation—such as day‑count conventions and benchmark reset timings—according to the RBI’s Developmental and Regulatory Policies statement.

These steps aim to create consistency, improve loan‑price transparency, strengthen the flow of monetary policy, and increase consumer protection.

The RBI said it will soon release draft directions reflecting these proposals for public feedback.

To improve transparency, the RBI instructed banks in 2019 to move from the Marginal Cost of Funds framework to external benchmarks such as the repo rate for loan pricing.

Starting October 1, 2019, banks were required to tie all new floating‑rate loans for housing, automobiles and MSMEs to an external benchmark such as the repo rate, aiming to pass policy rate reductions to borrowers more quickly.

Banks may link their lending rates to external benchmarks including the repo rate, the 3‑month or 6‑month Treasury‑bill yield, or any other benchmark released by Financial Benchmarks India Private Ltd (FBIL).

Under the external‑benchmark regime, banks must adjust the interest rate at minimum every three months.

In August 2017, the RBI formed an Internal Study Group (ISG) to review the performance of the MCLR system introduced in April 2016.

The ISG advised shifting to a lending‑rate system anchored to external benchmarks.

Published on August 5, 2026