MUMBAI: RBI’s move to harmonise interest rate frameworks across regulated entities is likely to standardise loan pricing and improve monetary transmission while reducing the pricing discretion currently available to NBFCs.The move would mark a departure from the existing structure where commercial banks operate under structured benchmark systems, while NBFCs retain greater flexibility through internal, board-approved prime lending rate models. According to the broad direction of policy, the central bank is likely to extend principle-based interest rate rules across lenders to curb arbitrary pricing and strengthen consumer protection.The new norms will impact all non-bank lenders, including housing finance companies and microfinance providers. The framework is expected to push NBFCs towards standardised benchmarking of floating rate loans. Under current bank rules, retail and MSME floating rate loans are linked to an external benchmark rate such as the RBI repo rate or treasury bill yields, while other floating loans are tied to internal benchmarks such as MCLR.NBFCs could be required to adopt recognised external benchmarks for retail and MSME loans or formal internal benchmarks instead of internal prime rates. They may also be required to follow a uniform benchmark within each loan category to improve predictability for borrowers.RBI is also likely to introduce standardised reset timelines for floating rate loans. At present, NBFC practices allow flexibility in resetting rates, which can result in slower transmission of rate cuts compared to hikes. Under the expected alignment, external benchmark-linked loans may require resets at least once every three months, while internal benchmark-linked loans could have a maximum reset period of one year.Loan agreements are likely to be required to clearly specify reset dates to improve transparency.
