RBI tweaks upcoming new rules for lending rates

The Reserve Bank of India said on Tuesday fixed-rate loans of up to three years offered by lenders will have to be set based on their marginal cost of funding, although loans above that tenor would be exempt.

Previously all fixed-rate loans had been exempted from being set based on their marginal cost of funding.

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The tweak will apply to new rules the RBI will implement starting on April 1, which force lenders to base most of their lending rates on their marginal cost of funds and not the average cost of funds currently in use.

The new rules would thus force lenders to adjust their lending rates based on market rates, removing some of the sector's discretion in deciding how much to charge for loans.