RBI Issues New Banking Rules from October 1 2025

RBI Issues New Banking Rules from October 1 2025

Why in News?

Recently, the Reserve Bank of India announced new changes in banking rules that came into effect from October 1, 2025. The move aims to give banks more operational freedom while creating a customer-friendly lending environment.

What are the New RBI Banking Rules Effective from October 1, 2025?

• Flexibility in Loan Adjustment: Earlier, banks were allowed to revise the spread component of a loan only once every three years. The spread is the extra margin added by banks over the benchmark lending rate to calculate the final interest rate for borrowers. From October 2025, the RBI has allowed banks to reduce the spread before three years if justified.

• Transmission of Monetary Policy: India has been following the external benchmark-based lending rate (EBLR) system since 2019. Under this system, most loans are directly linked to the repo rate or short-term treasury bill rates. Between February and June 2025, the RBI cut the repo rate by 100 basis points (1%). But in reality, the reduction passed on to old borrowers was less than this, which slowed the impact of monetary policy.

• Fixed Interest Rate Option: The RBI has allowed banks to offer customers an option to switch from floating to fixed interest rates in case of personal loans. This option can be exercised during the reset period of the loan. Floating interest rates often fluctuate with the repo rate, while fixed rates remain constant for a set period. Borrowers who want stability in their monthly payments can benefit from this facility.

• Loans for Jewellers Businesses: Until now, banks were not allowed to provide loans for the purchase of gold and silver, or to lend against primary gold or silver assets like coins or bars. From October 2025, RBI has permitted banks to extend working capital loans to jewellers who use gold as raw material in their business operations. The RBI has also allowed urban co-operative banks in tier-3 and tier-4 cities to provide such loans.

Benefits of These RBI Banking Reforms

• • Borrower Savings: The new rules allow banks to reduce the spread component on loans before three years. This means that existing borrowers can pay lower interest rates sooner. Borrowers who took loans in 2023 or 2024 can now benefit from rate cuts without waiting for three years. Lower interest rates reduce EMIs and total repayment amounts.
  • Monetary Policy Transmission: The reforms strengthen the policy transmission mechanism. Earlier, reductions in the repo rate affected new loans quickly but had limited impact on existing loans. With banks allowed to reduce spreads early, interest rate cuts now reach ongoing borrowers faster. This improves the effectiveness of RBI’s monetary policy and stabilises the economy.
  • Flexible Loan Options: The introduction of a floating-to-fixed rate option for personal loans gives borrowers more control over repayments. Borrowers can switch to a fixed rate during interest rate reset periods if they expect rates to rise. This option provides predictability and protects households from sudden interest spikes.

• Support for SMEs: The RBI reforms allow banks to give working capital loans to jewellers who use gold or silver as raw material. Previously, lending for gold purchases or against primary gold was prohibited. Small and medium jewellers in tier-3 and tier-4 cities now have access to formal credit. This helps businesses manage production, stock, and seasonal demand.

RBI Draft Proposals Open for Feedback

The Reserve Bank of India has released draft proposals for public feedback on October 3, 2025. The RBI has invited public comments on these draft proposals until October 20, 2025. Banks, industry associations, and other stakeholders can provide suggestions to improve the framework. 

• • Gold Metal Loans (GML) Repayment Tenor: The draft suggests extending the repayment tenor for Gold Metal Loans from the current 180 days to 270 days. This change will give jewellers more time to repay loans and manage cash flow. 
  • GML for Non-Manufacturing Jewellers: The RBI also proposes allowing non-manufacturing jewellers to access Gold Metal Loans for outsourced production. Currently, GML is limited to manufacturers using gold as raw material for in-house production.  
  • Large Exposures Framework (LEF) Alignment: The draft circulars propose aligning Large Exposures Framework (LEF) and Intragroup Transaction Exposure (ITE) norms for foreign bank branches operating in India. Banks will have clearer guidelines on managing large exposures within the group. 

• Head Offices under LEF: Under the new proposal, exposures to head offices of foreign banks will be considered only under LEF. This approach provides expanded credit risk mitigation benefits to banks. It allows banks to manage their credit exposure more efficiently.

• • Weekly Credit Data Reporting: The RBI draft suggests changing the credit data reporting cycle from fortnightly to weekly submission to credit bureaus. More frequent reporting improves the accuracy and timeliness of credit information.

• Faster Error Rectification: The draft mandates faster rectification of errors in credit reports and requires including CKYC (Central Know Your Customer) numbers in all submissions. Including CKYC numbers helps link credit information with verified identities.