EMI relief may be quicker from Oct as RBI changes loan rules

RBI's latest rule change removes a 3-year lock on loan spreads, letting borrowers see EMI relief sooner and choose fixed rates at reset.

Home, car and personal loan repayment amounts are likely to reduce sooner after banks cut lending rates starting October. The Reserve Bank of India (RBI) has changed its rules, giving lenders more room to pass on rate benefits to customers.

 

What has changed

Under earlier rules, banks could not change certain parts of the loan spread (the components added over the benchmark rate) for at least three years. This slowed down reduction in the repo-linked lending rates.

 

The RBI has removed this three-year lock-in. This means:

 

• Banks can reduce the non-credit-risk portion of the spread whenever they lower lending rates. 
• Borrowers will no longer have to wait for years to feel the full impact of monetary policy cuts. 
• Those with floating-rate loans will be the direct beneficiaries.

 

Borrowers can choose

 

The RBI has also continued a facility introduced last year. At the time of interest rate reset, borrowers on floating-rate loans can choose to switch to a fixed-rate loan. This provides an option to lock in their EMIs if they fear rates could rise again in the future.

 

 

Why this matters for households

 

For Indian families already struggling with higher EMIs due to rate hikes in 2022–23, the new rules bring relief:

 

A repo rate cut could now ease monthly budgets faster.

 

With better transmission, personal cash flow management becomes easier.

 

Banks, too, gain flexibility to compete on interest rates, potentially creating more borrower-friendly options.

 

Other regulatory relaxations

 

Alongside loan rate changes, the RBI also:

 

Allowed banks to extend working capital loans against bullion to jewellery manufacturers, expanding access to co-operative banks in smaller cities.

 

Relaxed capital-raising rules by permitting banks to include more perpetual debt instruments (PDIs) issued overseas in their Additional Tier-1 capital.

 

What to watch

The RBI has released draft circulars on gold metal loans, exposure norms and credit information reporting, open for feedback till October 20.

 

For now, the key takeaway for households is clear: when interest rates head down, the relief on your EMIs may not take as long to arrive.