Reserve Bank of India (Interest Rate on Advances) (Amendment Directions), 2025

**Executive Summary** This document, issued by the Reserve Bank of India (RBI) on September 29, 2025, provides amendment directions to the "Interest Rate on Advances" Directions, 2016, the "Circular on Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans" dated August 18, 2023, and related FAQs. The amendments address customer retention and borrower options to switch to fixed interest rates. These amendments will come into force on October 1, 2025. **Key Points / Main Content** * **Reserve Bank of India (Interest Rate on Advances) Directions, 2016:** * A proviso is inserted in Chapter IV, allowing banks to reduce other spread components for customer retention in a loan category earlier than three years, on justifiable grounds, in a non-discriminatory manner, and in terms of the bank's policy. * **Circular dated August 18, 2023 on Reset of Floating Interest Rate on EMI based Personal Loans:** * Paragraph 2(ii) is modified to state that at the time of reset of interest rates, Regulated Entities (REs) may, at their option, provide borrowers with the option/choice to switch to a fixed rate as per their Board approved policy. The policy may also specify the number of times a borrower can switch during the loan's tenor. * **FAQs on Reset of Floating Interest Rate on EMI based Personal Loans:** * Answer (b) to FAQ No 3 is modified to state that a borrower can switch to a fixed interest rate for the remaining portion of the loan where such an option is provided by the Regulated Entity (RE). * FAQ Nos 4 and 5 are deleted. **Impact Analysis** **Banks** * **Impact:** Banks have the flexibility to reduce spread components for customer retention earlier than three years and have the option to provide borrowers with the choice to switch over to fixed rates as per board approved policy. * **Action Required:** Update policies and procedures to align with the amended directions, particularly regarding customer retention and the provision of options for borrowers to switch to fixed interest rates, and to determine if/how they wish to provide this option. **Borrowers** * **Impact:** Borrowers may now have the option to switch to a fixed interest rate at the time of interest rate reset, depending on the policies of the lending bank. * **Action Required:** Understand the bank's policy on switching to fixed interest rates and assess their options at the time of interest rate reset.

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